Pound rises as UK PMI climbs

GBP/USD has posted considerable gains on Tuesday. Currently, the pair is trading at 1.3398, up 0.56% on the day.

UK Manufacturing PMI climbs

There was positive news from the manufacturing sector, as UK Manufacturing PMI looked sharp in October. The index rose to 55.6, up from 53.7 beforehand. This figure surpassed the consensus of 55.2 and was the highest reading since December 2018. The index has now been in expansion territory (above the 50-level) for six months, as the manufacturing sector has rebounded nicely since the pandemically-driven downturn earlier in the year.

The services sector is also in expansionary territory, and the Services PMI accelerated to 58.8 in August. Since then, however, the pace of expansion has slowed significantly, as the PMI fell to 51.4 in September. The downward trend is expected to continue in October and cross into contraction territory, with a forecast of 45.8 points. In the UK, the services sector is a much larger segment of the economy than manufacturing, so a weak reading from Services PMI could weigh on the pound.

Is this the week for Brexit?

In the long and windy road of Brexit, deadlines have come and gone. This time, however, there is simply no ignoring the December 31st deadline, as the UK will withdraw from the European Union on that date, done deal or not.

The sides are clearly in a race against time to reach an agreement, but there hasn’t been much in the way of leaks, leaving the markets with a gigantic question mark as to whether a deal will be reached in time. Granted, the markets have priced in a Brexit agreement, but nothing can be assumed in the world of Brexit, given the torturous negotiations and bad blood between London and Brussels since the referendum way back in June 2016.

There are reports of progress on the final sticking points, such as fishing rights, and a deal could suddenly be announced at any time. At the same time, the sky will not fall on January 1st if a deal has not been reached – there is nothing preventing the sides from continuing to work on a free trade arrangement after the December 31st deadline. Still, an agreement before the end of the month would provide the business sector and the markets with some much-needed certainty, and that would be a bullish development for the British economy and the pound.

GBP/USD Technical

• We find support at 1.3291. Close by, there is a support line at 1.3259
• GBP/USD is testing resistance at 1.3370, followed by resistance at 1.3417
• The pair has put some distance between itself and the 10-day MA line

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