GBP/USD – British Pound Higher as Construction PMI Beats Estimate

The British pound has moved upwards at the start of the week. In Monday’s North American session, GBP/USD is trading at 1.3384, up 0.25% on the day. On the release front, British Construction PMI remained unchanged at 52.5 in April, above the estimate of 52.0 points. There is just one event on the calendar, with US Factory Orders expected to decline 0.4%, after a strong gain of 1.6% in the previous release. On Tuesday, the focus will be on the services sector. The U.K releases Services PMI and the U.S publishes ISM Non-Manufacturing PMI and JOLTS Jobs Openings.

A rate hike in June from the Federal Reserve is virtually a given, with the CME Group forecasting a gain of 94%. At the same time, there is increasing talk that the Fed is moving closer to a neutral monetary policy. Recent statements by FOMC policymakers appear to support such a conclusion, which would mean that the Fed would let the economy ‘ride on its own steam’ without intervening by adjusting interest rates. The minutes of the May meeting noted that policymakers would consider allowing inflation to rise above the Fed’s 2 percent target for a temporary period, which means that the Fed would not rush to raise rates based on the inflation target. After June, the Fed is most likely to raise rates in September. Analysts are divided on whether a fourth rate hike will be needed. If the economy is in danger of overheating, policymakers would have to seriously consider another rate increase in December.

The U.S published strong employment numbers on Friday, but the releases provided only a small boost for the US dollar. Wage growth improved to 0.3% in May, up from 0.1% a month earlier. Nonfarm payrolls jumped from 189 thousand to 164 thousand and the unemployment rate dropped to a sizzling 3.8 percent. All three indicators beat their estimates and are indicative of a labor market running at full capacity midway through the second quarter.

With the European Union finding itself embroiled in an escalating trade war with the Trump administration, Brexit supporters are no doubt wishing that the U.K had its own trade agreement with the U.S. Although Britain has one foot out of the EU, any tariffs applied to the EU could cost British jobs. On Thursday, the Trump administration made good on its threats and imposed stiff tariffs on the European Union, Mexico and Canada. The U.S had granted all three trading partners a temporary extension, but cited insufficient progress on trade talks as the reason for the tariffs.  This has triggered promises of retaliatory tariffs on US products, and matters heated up on the weekend at the G-7 meeting of finance ministers in Canada. U.S Treasury Secretary Steve Mnuchin faced sharp criticism from other finance ministers over the tariffs. There are fears that the escalating trade tensions could trigger a global trade war.

  Dollar Dips on Trade Worries.

  Chasing One’s Tail

GBP/USD Fundamentals

Monday (June 4)

• 4:30 British Construction PMI. Estimate 52.0. Actual 52.5
• 10:00 US Factory Orders. Estimate -0.4%
• 13:00 British MPC Member Silvana Tenreyo Speaks

Tuesday (June 5)

• 4:30 British Services PMI. Estimate 52.9
• 10:00 US ISM Non-Manufacturing PMI. Estimate 57.9
• 10:00 US JOLTS Job Openings. Estimate 6.49M

*All release times are DST

*Key events are in bold

GBP/USD for Monday, June 4, 2018

GBP/USD June 4 at 8:15 DST

Open: 1.3349 High: 1.3399 Low: 1.3345 Close: 1.3384

GBP/USD Technical

GBP/USD edged higher in the Asian session. In European trade, the pair posted small losses but has reversed directions and posted gains

• 1.3301 is providing strong support
• 1.3398 was tested earlier in resistance. It is a weak line and could break in the North American session
• Current range: 1.3301 to 1.3398

Further levels in both directions:

• Below: 1.3301, 1.3186, 1.3065 and 1.2965
• Above: 1.3398, 1.3494, 1.3613 and 1.3712

OANDA’s Open Positions Ratio

In the Monday ratio, GBP/USD ratio is showing gains in long positions. Currently, long positions have a majority (70%), indicative of trader bias towards GBP/USD continuing to move upwards.

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.GBp