British pound dips despite strong PMI

The British pound has started the new year with losses. Currently, GBP/USD is trading at 1.3608, down 0.30%.  

The month of December brought plenty of cheer to the pound, which gained 2.5% against the sagging dollar. There was plenty of speculation around the pound in the final weeks of the year, as it was unclear whether the UK and the European Union would reach an agreement over Brexit before the December 31st deadline. With thick tension in the air, there were projections that the pound could fall below 1.30 or climb above the 1.40 level, depending on if a deal was reached. In the aftermath of the historic deal, the pound hasn’t stormed above 1.40, but at the same time, a significant downside risk to the pound has been removed.

The week kicked off with positive news, as UK Manufacturing PMI continues to accelerate. The PMI was revised upwards to 57.5, slightly higher than the initial estimate of 57.3 points. This reading is well into expansionary territory and is the index’s highest level since November 2017. The services and construction PMIs follow later in the week.

All eyes are on the US state of Georgia, with a runoff election for the state’s two Senate seats. If the Republicans can win one of these seats, they will retain control of the Senate, which would mean that the Democrats would be hard-pressed to enact major stimulus programs. Conversely, if the Democrats manage to win both seats, they would have full control of the federal government, which would make it much easier for them to implement their agenda. The US dollar is projected to fall if the Republicans maintain the Senate and to gain ground if the Democrats win both seats.

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GBP/USD Technical

• GBP/USD faces resistance at 1.3767. The next resistance line is at 1.3860
• 1.3505 is providing support. Below, there is support at 1.3336
• The pair remains above the 10-day MA line

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