GBP/USD Little Changed Despite a Rise in PMI figures to 4-Month High

After dipping to lows not seen since the start of the month, GBP/USD gained about 1% yesterday to snap a four-day losing streak. Data out of the UK pointed to a healthy economic recovery although the pair has struggled to extend higher on the back of the report.

Data from surveyed purchase managers in both the manufacturing and service industry indicated a notable rebound in the economy. The manufacturing PMI was reported at 50.8 while the services PMI came in at 47.0, both at a four-month high. A figure above 50 indicates growth which means that the manufacturing sector is technically seen as growing at this point.

But despite the positive figures, comments from Chris Williamson, Chief Business Economist at IHS Markit, suggested that the UK is not in the clear yet. Williamson highlighted risks stemming from Brexit and said that the rebound is partially attributed to businesses reopening.

IHS Markit expects the economy to contract by 11.9% in 2020 before rebounding next year with an estimated growth rate of 4.9%. This is significantly lower than the Bank of England’s estimate of 15% GDP growth next year.

The US will release its latest PMI data later in the North American session. Analysts are expecting the data to show a similar economic rebound.

Technical Analysis

GBP/USD is seen consolidating in a tight range after a sharp push higher early in the day yesterday. There is resistance in play at 1.2450 which is the same level that held the exchange rate lower in late March.

The equity markets are showing strength and this stands to underpin the currency pair in the session ahead, but the lack of upward movement following the strong PMI report should be concerning for bulls.

If GBP/USD is unable to scale above 1.2450 on a sustained basis, we may see a move back towards monthly lows near 1.2340.

To the upside, resistance is seen at 1.2647 if the pair is able to regain the upward momentum seen yesterday.

Bottom Line

• UK data shows the economy recovering although risks remain and the rebound in GDP next year might fall short of the BoE’s expectation.
• PMI data from the US will be released later in the day.

For a look at all of today’s economic events, check out our economic calendar.