GBP to USD: A Return to $1.2750 Hinged on UK and US PMIs

Highlights

• The GBP to USD found support this morning, gaining 0.07% to $1.27013.
• It is a relatively busy day ahead, with manufacturing sector PMIs for the UK and the US in focus.
• Risk on sentiment from the Asian session supported a bullish start to the quarter, with PMI numbers from China beating expectations.

It is a relatively busy day ahead for the GBP to USD. Finalized UK manufacturing PMI numbers for June will be in focus this morning.

According to the prelim survey, the UK Manufacturing PMI fell from 47.1 to 46.2 in June. A steep and accelerated fall in new orders and a decline in factory gate prices for the first time in more than seven years supported the weaker headline PMI. While today’s numbers will draw interest, the services PMI (Wed) will remain the focal point for the private sector.

While private sector output slowed in June, according to the prelim survey, the Bank of England remains in a hawkish cycle. Elevated inflation and wage growth remain bugbears that could force the BoE to send the UK economy into a recession.

Investors should consider Bank of England chatter, with the UK economic calendar on the light side. However, no MPC members are on the calendar to speak today, leaving commentary with the media to move the dial.

Earlier today, private sector PMI numbers from China set the tone.

In June, the Caixin Manufacturing PMI fell from 50.9 to 50.5 versus a forecasted 50.2. While weak overseas demand was a drag, investors responded favorably to the better-than-expected headline PMI number. The latest PMI reading supports the hope of further PBoC support to boost economic activity.

The US Session

However, we expect US economic indicators to have more influence. The ISM Manufacturing PMI will draw plenty of interest later today. Investors should consider employment, inflation, and new order sub-components.

Softer-than-expected inflation numbers on Friday failed to curtail bets on a Fed 25-basis point interest rate hike this month nor another move in September. Weak PMI numbers could impact sentiment toward a post-summer rate hike.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 87.4% versus 71.9% one week earlier. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 21.5%, up from 11.5% one week earlier.

GBP to USD Price Action

This morning, the GBP to USD was up 0.07% to $1.27013. A mixed start to the day saw the GBP to USD fall to an early low of $1.26844 before rising to a high of $1.27056.

GBP to USD Daily Chart

The Daily Chart showed a GBP TO USD breakout from the psychological $1.26 support level as the markets responded to US inflation numbers. Looking at the EMAs, the GBP TO USD sat above the 50-day ($1.25560) and 200-day ($1.23284) EMAs, signaling bullish momentum over the near and long term.

Notably, the 50-day EMA continues to pull away from the 200-day EMA and reflects bullish momentum.

Looking at the 14-Daily RSI, the 56.34 reading signals a moderately bullish trend, aligned with the 50-day and 200-day EMAs. Avoiding sub-$1.27 would support a move through the upper level ($1.2750) of the $1.2700 – $1.2750 resistance band to target $1.28.

GBP to USD 4-Hourly Chart

Looking at the 4-Hourly Chart, the GBP TO USD faces strong resistance at the $1.2750 psychological level. After a bullish end to last week, the GBP TO USD sat above the 50-day ($1.26858) and 200-day ($1.25994) EMAs, sending bullish signals. Significantly, the 50-day EMA pulled away from the 200-day EMA, signaling another run at the upper level ($1.2750) of the resistance range of $1.2700 – $1.2750.

The GBP TO USD needs to hold above the 50-day EMAs to target last week’s high of $1.27594 (Tues).

The 14-4H RSI reading of 55.26 indicates a moderately bullish stance, with buying pressure outweighing selling pressure. An upward trend would align the RSI with the EMAs and signal a possible breakout from the current resistance range of $1.2700 – $1.2750.

Daily Resistance & Support Levels