Weak Manufacturing PMI Data Turns the Pound Bearish

Weak Manufacturing PMI Data Turns the Pound Bearish
July 2, 2019

 

The pound fell against the US dollar yesterday following the release of poor economic data that indicated a further contraction in the UK economy. The pound also came under selling pressure due to the resumption of trade talks between the US and China, and the partial lifting of trade curbs on Huawei Technologies. From a high of 1.2705, the GBP/USD pair fell to a low of 1.2625 in the past 24 hours. The currency pair is trading near its lows at the time of writing this article.

The Brexit uncertainty continues to have a profound negative impact on the UK manufacturing sector. According to IHS Markit, the manufacturing PMI declined to 48 in June, from 49.4 in the previous month. Analysts had expected the manufacturing PMI to improve to 49.5 in the last month. A reading below indicates contraction and vice versa. The reported figure was the lowest recorded manufacturing PMI since February 2013.

Likewise, the Bank of England reported that net lending to individuals declined to £3.90 billion in May, from £5.1 billion in the previous month. The weak economic data kept the currency pair bearish.

During a one-on-one meeting on Saturday between Trump and Xi on the sidelines of Osaka summit, the US President decided to halt imposing additional tariffs on imports from China and restart trade negotiations. Yesterday, Trump stated that trade talks with China have “already begun” over the phone. The US President further noted that any agreement between the top two economies of the world would be slightly tilted in favor of the US.

Trump said: “They’re speaking very much on the phone but they’re also meeting. Yeah, it’s essentially already begun. It actually began before our meeting. It has to be better for us than for them because they had such a big advantage for so many years.”

The pound’s decline was further fueled by the announcement of better than anticipated US ISM manufacturing PMI for June. The figure came in at 51.70 surpassing economists’ expectation of 51.  The weak economic data and Brexit related uncertainty are expected to keep the pound bearish against the greenback which has turned buoyant on the resumption of trade talks between Beijing and Washington.

The currency pair’s trend will be affected by the Bank of England’s Governor Mark Carney’s speech and the UK housing data scheduled to be released later today.

Technically, the GBP/USD is trading below its 50-day moving average. Furthermore, the currency pair is moving within a descending channel.  The RSI indicator has a reading below 50. As a result, we can anticipate the GBP/USD pair to move down in the short-term.

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.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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