GBP/USD – Pound Drifting, Manufacturing and Services PMIs Loom

GBP/USD

GBP/USD is drifting in Thursday trade, continuing the lack of movement seen on Wednesday. Early in the European session, the pair is trading at 1.2935, up 0.07% on the day.

On the fundamental front, the U.K. budget is the only event on the schedule. The budget deficit ballooned in September to GBP 8.7 billion, up from GBP 5.8 billion a month earlier. This was highest deficit since November 2016. Another large deficit is expected for October, with a forecast of GBP 8.5 billion.

Ahead – Manufacturing, Services PMIs

PMI reports are important gauges of the strength of key sectors in the economy, and the data from the manufacturing and services industries have not been encouraging. Final Manufacturing PMI remains under the 50 level, which separates contraction from expansion. In October, the PMI improved to 49.6, but the initial reading for November stands at 48.8. The situation is only marginally better in the services sector. Final Services PMI for October came in at 50.0, pointing to stagnation. The initial reading for November is almost identical, at 50.1 pts.

Fed Says Pause to Continue

On Wednesday, the Federal Reserve released the minutes of its October policy meeting. Investor reaction to the release was muted, as the British pound and other major currencies showed little interest. Policymakers said that the Fed would remain on pause from further rate cuts, unless there was a significant change in economic conditions. Although the Fed trimmed rates at the October meeting for a third straight time, that cut was accompanied by hawkish language, as the Fed sought to reassure investors that the U.S. economy was in good shape, despite the rate cut. The minutes reiterated that economic conditions were positive, with an outlook of moderate growth, a robust labor market and inflation close to the Fed’s target of 2 percent.

Technical Analysis

With GBP to USD showing little movement, our technical analysis remains in place. There is immediate support at 1.2910, which has remained relevant throughout the week. Below, there is support at the round number of 1.2800. On the upside, there is resistance at 1.2970, which is protecting the symbolic number of 1.3000. Above, we find resistance at 1.3100.