Pound Rebounds From 3-Month Low On Likely Brexit Solution

Pound Rebounds From 3-Month Low On Likely Brexit Solution
June 23, 2020

 

The British pound rallied against the greenback yesterday, mainly due to optimism about a possible solution to the Brexit issue. A slight improvement in order backlog data, even though negative, also fueled the pound’s uptrend. Furthermore, the existing home sales data from the US also missed analysts’ expectations. All these factors played a part in the pound’s uptrend. In the past 24 hours, the pound rallied from a low of 1.2335 to a high of 1.2507.

The Confederation of British Industry (CBI) stated that total order books improved slightly to -58% in June, from -62% in the earlier month, but remains far below the long-term average of -14%. Economists had anticipated improvement to -50%. Notably, export order books worsened by -79% in June, from -55% in the prior month, reflecting a new low since the figures were first released in April 1977. Furthermore, for the upcoming three months, average selling prices are anticipated to decline at a slower rate of -10%, from -20% in May.

In the three months to June, manufacturer output volumes declined at the quickest rate on survey data, which was first published in 1975 and eclipsed the record set last month. The survey of over 360 manufacturers also revealed that output volume fell in 15 out of 17 sub-sectors, with the headline declines in output mainly led by the motor vehicles & transport machinery, metal products, and mechanical engineering segments. Moving forward, manufacturers anticipate the rate of fall in output volumes to ease in the forthcoming quarter. Companies also expect the output prices in the next three months to decrease at a sluggish rate.

Commenting on output volumes, Anna Leach, CBI Deputy Chief Economist, said: “The UK manufacturing sector remained in a deep downturn in June due to the ongoing COVID-19 crisis. Output volumes declined at a new record pace and export order books fell to an all-time low, reflecting the significant fall in demand in the UK and abroad. Firms are again hoping that this will ease somewhat in the next three months. The Government has already undertaken a huge amount of work to provide financial lifelines to businesses throughout this unprecedented period. With firms having been encouraged to restart operations, the Government must continue to engage with the sector to understand their specific concerns and provide support as needed.”

In the US, the National Association of Realtors (NAR) stated that existing home sales declined to 3.91 million units in May, from 4.33 million units in the earlier month, and missed economists’ expectations of 4.15 million units. All the four major regions recorded a decline in m-o-m and y-o-y sales, with the Northeast region posting the most significant m-o-m decrease. Overall, sales decreased by 26.6% y-o-y from 5.33 million in May 2019.

Lawrence Yun, NAR’s chief economist, said, “Sales completed in May reflect contract signings in March and April – during the strictest times of the pandemic lockdown and hence the cyclical low point. Home sales will surely rise in the upcoming months with the economy reopening, and could even surpass one-year-ago figures in the second half of the year.”

Notably, first-time buyers accounted for 34% of total sales in May, a decrease from 36% in the earlier month and up from 32% in May 2019. Single-family home sales were 3.57 million in May, down 9.4% from 3.94 million units in April and declined 24.8% on a y-o-y basis.

The Brexit deal optimism and weak data from both countries are expected to keep the GBP/USD pair range-bound with slight bullish bias in the short-term.

Technically, the currency pair has formed an inverted shoulder pattern. Furthermore, the GBP/USD pair has bounced off the support at 1.2450. The next resistance is anticipated only near 1.2640. Therefore, we are anticipating the currency pair to rally further in the short-term.

GBP - technical analysis - 23rd June 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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