GBP/USD – British Pound Gains Ground Despite Soft U.K. Manufacturing PMI

The British pound has started the New Year with gains. In Tuesday’s North American trade, GBP/USD is trading at 1.3580, up 0.55% on the day. The pound is currently at its highest level since mid-September. On the release front, British Manufacturing PMI slowed to 56.3, shy of the forecast of 58.0 points. In the US, today’s sole event was Final Manufacturing PMI, which climbed to 55.1, edging above the estimate of 55.0 points. This marked the highest level since March 2015. On Wednesday, the UK releases Construction PMI. In the US, the FOMC will publish the minutes of its December meeting, and we’ll get a look at ISM Manufacturing PMI.

The new trading week kicked off in the UK with Manufacturing PMI. Although the index missed expectations, the reading pointed to expansion in the manufacturing sector, which has received a boost from strong global demand for British exports. As well, the weak pound has also made British products less expensive. The markets are expecting continued growth in the construction and services sectors later this week.

Traders can expect the Federal Reserve in the headlines a fair amount early in the New Year. Investors will be monitoring the Fed on Wednesday, with the release of the minutes of the December meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25% and 1.50%. The hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could gain ground. If the US economy continues to expand at a clip exceeding 3%, the Fed is expected to raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Although inflation remains well below the Fed target of 2.0%, outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will lead to higher inflation. Although this is yet to materialize, of significance to the markets is the commitment of the Fed to press ahead with rate hikes, despite low inflation.

GBP/USD Fundamentals

Tuesday (January 2)

• 4:30 British Manufacturing PMI. Estimate 58.0. Actual 56.3
• 4:36 British Housing Equity Withdrawal. Estimate -6.2B. Actual -5.9B
• 9:45 US Final Manufacturing PMI. Estimate 55.0. Actual 55.1

Wednesday (January 3)

• 4:30 British Construction PMI. Estimate 53.2
• 10:00 US ISM Manufacturing PMI. Estimate 58.3
• 14:00 US FOMC Meeting Minutes

*All release times are GMT

*Key events are in bold

GBP/USD for Tuesday, January 2, 2018

GBP/USD January 2 at 11:40 EDT

Open: 1.3506 High: 1.3490 Low: 1.3504 Close: 1.3580

GBP/USD Technical

GBP/USD posted small gains in the Asian session. The pair has edged higher in the European and North American sessions

• 1.3503 is providing support
• 1.3655 is the next resistance line

Current range: 1.3503 to 1.3655

Further levels in both directions:

• Below: 1.3503, 1.3402, 1.3221 and 1.3186
• Above: 1.3655, 1.3809 and 1.3901

OANDA’s Open Positions Ratio

In the Tuesday session, GBP/USD ratio is showing short positions with a slight majority (53%). This is indicative of trader bias towards GBP/USD reversing directions and moving lower.

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.