British pound steady despite PMI setback

GBP/USD has reversed directions on Thursday, as the pair has recorded slight gains. In the European session, the pair is trading at 1.2761, up 0.27%.

PMIs weaken in September

The British manufacturing and sectors slowed in September, as the economy remains on tenuous footing. The Flash Manufacturing PMI dipped to 54.3, down from 55.3 beforehand. The drop was more dramatic in services, as the PMI fell from 60.1 in August to 55.1 in September. Still, both readings point to expansion, with readings above the neutral 50-level. Investors don’t appear concerned over the PMI numbers, as the British pound is steady on Thursday.

BoE walks back on negative rates 

Bank of England Governor Andrew Bailey was busy doing some damage control this week. On Tuesday, Bailey tried to dampen expectations that the central bank was considering negative rates. The source of this significant news was none other than the BoE, which last week held its policy meeting. As expected, the bank maintained interest rates at 0.10%. What caught the attention of investors was the Monetary Policy Summary, which stated that the bank’s MPC members had been briefed on the possibility of negative interest rates, and how a negative rate could be “implemented effectively” should such a move become warranted. Predictably, investors were not pleased with the spectre of negative rates and sent the pound lower, although the currency did recover.

The bank is doing its best to move on, with Bailey denying that the bank had signaled the possibility of negative rates in the Monetary Policy Summary. Clearly, the BoE is keen to forget the whole episode, although it is puzzling that bank officials thought that the mention of negative rates would not weigh on the pound. Will investors buy what Bailey is selling? The BoE is sure to be careful not to mention negative rates, but clearly the bank remains very dovish regarding interest rate policy.

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GBP/USD Technical

• In the Asian session, GBP/USD broke above resistance at 1.2773. The next resistance line is at 1.2825
•  There is support at 1.2672, followed by support at 1.2623
• GBP/USD has pushed below the 10-day MA line. This is a sign of a downward trend for the pair

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