GBP to USD Forecast: UK and US Manufacturing PMIs in Focus

Highlights

• The GBP/USD fell by 0.26% on Friday, ending the session at $1.27006.
• On Tuesday, the UK manufacturing sector will be in the spotlight.
• Later in the session, US Manufacturing PMI numbers also need consideration.

The Friday GBP/USD Overview

On Friday, the GBP/USD declined by 0.26%. Following a 0.51% loss on Thursday, the GBP/USD ended the day at $1.27006. The GBP/USD rose to a high of $1.27729 before falling to a low of $1.27006.

UK Manufacturing Sector PMI in Focus

On Tuesday, the UK manufacturing sector will be in the spotlight. Finalized Manufacturing PMI numbers for December will garner investor interest. According to the preliminary numbers, the PMI fell from 47.2 to 46.4. Downward revisions could raise bets on an H1 2024 Bank of England rate cut.

The UK manufacturing sector accounts for less than 30% of the UK economy. However, a deterioration in sector conditions would align with expectations of a UK recession.

Investors must look beyond the headline PMI. The sub-components, including prices, employment, and new orders, warrant investor attention. Falling prices and softer job creation could give the Bank of England reason to begin discussing conditions needed to cut rates.

Beyond the numbers, Bank of England commentary also needs consideration. References to inflation, the economic outlook, and interest rates would move the dial.

US Manufacturing PMI in Focus

On Tuesday, the US manufacturing sector will also be in the spotlight. The US manufacturing sector contributes less than 30% to the US economy. However, weaker-than-preliminary numbers could fuel bets on a Q1 2024 Fed rate cut.

According to preliminary numbers, the US Manufacturing PMI fell from 49.4 to 48.2 in December. Investors must consider sub-components, including prices, new orders, and employment. Downward trends would signal a weak demand and consumption environment. The net effect would be a softening inflationary environment.

Investors must also consider Fed commentary. References to inflation, the economy, and interest rates need consideration.

Short-Term Forecast

Near-term trends for the GBP/USD will hinge on private sector PMIs and the US Jobs Report. Weaker-than-expected UK manufacturing and services PMIs could raise bets on an H1 2024 BoE rate cut. However, softer US labor market conditions could influence bets on a January 2024 Fed rate cut.

GBP to USD Price Action

Daily Chart

The GBP/USD sat above the 50-day and 200-day EMAs, sending bullish price signals.

A GBP/USD move through the $1.28013 resistance level would bring the $1.29 handle into play.

Central bank commentary and manufacturing sector PMIs will be the focal points.

However, a GBP/USD drop below the $1.27 handle would give the bears a run at the 50-day EMA.

The 14-period daily RSI reading of 56.36 indicates a GBP/USD return to the $1.28500 handle before entering overbought territory.

4-Hourly Chart

The GBP/USD sat below the 50-day EMA while holding above the 200-day EMA, sending bearish near-term but bullish longer-term price signals.

A GBP/USD break above the 50-day EMA would give the bulls a run at the $1.28013 resistance level.

However, a GBP/USD drop below $1.26500 would bring the 200-day EMA into play.

The 14-period RSI on the 4-hour Chart at 46.51 indicates a GBP/USD fall to the 200-day EMA before entering oversold territory.