GBP/USD Moves Towards 1.1850 As U.S. Services PMI Report Shocks Markets

Key Insights

• UK Services PMI report missed analyst expectations, but traders were still ready to buy the British pound. 
• Meanwhile, U.S. Services PMI report shocked dollar bulls who rushed to sell the American currency. 
• A move above 1.1850 will push GBP/USD towards the resistance at 1.1880.

British Pound Rebounds After Strong Sell-Off

GBP/USD is trying to settle back above the 1.1850 level as traders take profits after the recent sell-off and react to the disappointing U.S. Services PMI report.

Today, the UK released flash readings of PMI reports. Manufacturing PMI declined from 52.1 in July to 46 in August, compared to analyst consensus of 51.1. Services PMI decreased from 52.6 to 52.5, while analysts expected that it would decline to 52.

The weak manufacturing data highlights the impact of the energy crisis on the UK economy. It looks that the services segment was supported by the summer vacation season.

The weakness of the UK economy served as the main driver for the recent sell-off in GBP/USD. However, the weaker-than-expected Manufacturing PMI report did not push GBP/USD to new lows as traders were focused on profit-taking after the big move.

In the U.S., the flash reading of the Manufacturing PMI report indicated that Manufacturing PMI decreased from 52.2 in July to 51.3 in August, compared to analyst consensus of 52.

The Services PMI report shocked markets as Services PMI decreased from 47.3 to 44.1, while analysts expected that it would grow to 49.2. Numbers below 50 show contraction.

The surprising weakness of the U.S. services segment shows that high inflation had a significant negative impact on consumer activity. The disappointing report pushed the U.S. Dollar Index from the 109 level to 108.20 as dollar bulls were not prepared for such news.

GBP/USD Tests Resistance At 1.1850

GBP/USD managed to get above the resistance level at 1.1800 and is testing the next significant resistance at 1.1850. If this attempt is successful, it will move towards the resistance at 1.1880. A move above this level will open the way to the test of the resistance at 1.1910.

On the support side, the previous resistance at 1.1800 will serve as the first important support level for GBP/USD. If GBP/USD gets back below this level, it will head towards the support at 1.1765. A successful test of this support level will push GBP/USD towards the support at 1.1740.

Traders should note that GBP/USD did not form any material levels in the 1.1800 – 1.1850 range, so they should be prepared for fast moves within this range.

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