Pound steady as markets eye NFP

UK Construction PMI cools off

The UK Construction PMI for December indicated that growth at cooled off and fallen to a 3-month low. The PMI slowed to 54.3, down from 55.5 in November. Although the construction sector continues to expand, the pace of expansion is considerably weaker than the summer months, when we were seeing readings in the mid-60s. This follows a disappointing Services PMI on Thursday, which fell from 58.5 to 53.6, its lowest level since February 2021.

The reason for the weak PMIs is the spread of the Omicron Covid variant, which has taken a toll on hospitality and travel as well as construction activity. Although Omicron appears to be milder than other Covid variants, the numbers of infections has skyrocketed, and this could result in negative growth for the UK in December and January. This could cause the Bank of England to delay its next rate hike, which had been expected as early as February.

There is plenty of anticipation ahead of the US nonfarm payroll release, especially after the huge ADP release earlier this week. The ADP gain of 807 thousand was double the consensus of 400 thousand, but historically, ADP has not been a reliable gauge of nonfarm payrolls.

The forecast for NFP is around 425 thousand, and a release below 250 thousand or above 550 thousand could shake up the US dollar. Investors are starting to get nervous now that a Fed rate hike may be only a few months away, and the timeline for the first rate hike of the year could be impacted by the strength of the nonfarm payroll release. A strong gain would strengthen the likelihood of a March hike, while a soft NFP could delay a rate hike and result in a rotation out of US dollars.

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GBP/USD Technical Analysis

• GBP/USD has support at 1.3426 and 1.3329
• There is resistance at 1.3585. Above, there is resistance at 1.3647

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