GBP/USD – Cable Ticks Higher as Services PMI Matches Estimate

The British pound is showing little movement on Wednesday. Early in the North American session, GBP/USD is trading at 1.3340. On the release front, it’s a quiet day. British Construction PMI was unchanged at 47.4 points, matching the forecast. In the US, there are two key indicators on the schedule. ADP Nonfarm Employment Change improved to 179 thousand, beating expectations. Later in the day, the US releases ISM Non-Manufacturing PMI. On Thursday, we could see some volatility from the pound, as the the BoE is widely expected to lower interest rates. Over in the US, the key event is Unemployment Claims.

British PMI reports continue to point to contraction, raising concerns about the health of the British economy. Services PMI posted a second straight contraction in July, with a weak reading of 47.4 points. However, the pound didn’t react as this reading matched the forecast.  Other sectors of the economy have fared no better, with readings below the 50-level, which indicates contraction. A special Manufacturing PMI report was published on July 22, covering the 4-week period immediately following the Brexit vote. The index dropped to 49.1 points. The negative trend has continued, as Manufacturing and Construction PMIs for July failed to break above the 50-level. There are growing worries that additional third quarter numbers, including GDP reports, will point to a weakening British economy due to the fallout from Britain’s surprise decision to leave the European Union. The markets will also be keeping a close eye on the BoE, which is widely expected to cut interest rates when it meets on Thursday, in order to cushion fallout from Brexit. The BoE surprised the markets in July when it maintained rates at 0.50%, but faces losing credibility if it stays on the sidelines again. The bank hasn’t lowered rates since 2009, so such a dramatic move could push the pound to lower levels.

The US dollar remains under pressure, courtesy of a surprisingly soft US GDP report late last week. US Preliminary GDP for the second quarter was projected at 2.6%, but posted a much smaller gain of 1.6%. The pound posted considerable gains, climbing back above the 1.32 line. The soft reading not only pushed the dollar lower, but has dampened enthusiasm regarding a rate hike by the Fed, which last week stayed on the sidelines yet again. On Monday, FOMC William Dudley, a close ally of Janet Yellen, said that the Brexit fallout posed a risk to the US economy and urged the Fed to proceed with caution before raising interest rates. The US will release wage growth and nonfarm payrolls later in the week, and these key employment numbers will be carefully monitored by the Fed as it mulls over a possible rate hike. The markets have circled September and December as the most likely dates for a rate hike, but if the Fed isn’t satisfied with the economy’s performance, it could delay any moves until 2017.

GBP/USD Fundamentals

Wednesday (August 3)

• 4:30 British Services PMI. Estimate 47.4. Actual 47.4
• 8:15 US ADP Nonfarm Employment Change. Estimate 171K. Actual 179K
• 9:45 US Final Services PMI. Estimate 51.0
• 10:00 US ISM Non-Manufacturing PMI. Estimate 56.0
• 10:30 US Crude Oil Inventories. Estimate -1.6M

Upcoming Key Events

Thursday (August 4)

• 7:00 BOE Inflation Report
• 7:00 BOE Official Bank Rate. Estimate 0.25%
• 7:00 BOE Asset Purchase Facility. Estimate 375B
• 7:30 BoE Governor Mark Carney Speaks
• 8:30 US Unemployment Claims. Estimate 265K

*All release times are EDT

GBP/USD for Wednesday, August 3, 2016

GBP/USD August 3 at 8:20 GMT

Open: 1.3336 High: 1.3372 Low: 1.3266 Close: 1.3345

GBP/USD Technical

• GBP/USD has shown limited movement in the Wednesday session
• 1.3219 is providing strong support
• 1.3359 was tested earlier in resistance and is a weak line. It could break in the North American session

Further levels in both directions:

• Below: 1.3219, 1.3142, 1.3064 and 1.2938
• Above: 1.3359, 1.3513 and 1.3667
• Current range: 1.3219 to 1.3359

OANDA’s Open Positions Ratio

GBP/USD ratio has shown slight gains in short positions. Long and short positions are close to an even split, indicative of a lack of trader bias as to what direction GBP/USD will take next.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.