- Mixed US Non-Farm Payrolls data did not initially support the Dollar, but the ISM Manufacturing PMI lifted sentiment.
- UK business activity remains in contraction, but inflation is approaching 7%, complicating the BoE’s next move.
- Office for National Statistics reviews the economic size of the UK, indicating growth of 0.6% in Q4 2021 compared to Q4 2019.
The British Pound (GBP) fell late in the New York session against the dollar, while US Treasury yields rose and supported the dollar, which is posting its seventh consecutive week of gains. The pair GBP/USD it reached a daily high of 1.2712 before reversing course and dipping towards the current exchange rate, trading around 1.2595.
GBP/USD falls back on improving US business activity, while UK factory activity remains at recessionary levels
Financial markets have remained calm after a very busy week in the US economic outlook. Nonfarm payroll data for August showed a mix, with 187,000 jobs added, beating the estimate of 177,000. However, the rise in the unemployment rate to 3.8% yoy, above the 3.5% forecast, surprisingly did not boost the dollar. Investors speculate that the Federal Reserve will delay tightening monetary conditions in September, which would reduce bets on rate hikes for November.
Consequently, the GBP/USD pair initially rallied towards its daily high. However, a better-than-expected business activity report triggered a reversal, sending the pound giving back those gains. The ISM manufacturing PMI rose from 46.4 to 47.6 in August, beating the 47 forecast. Most of the report’s subcomponents improved, indicating a more upbeat outlook for US business activity.
Another reason that supported the dollar was that US bond yields recovered some of the lost ground, which propped the US Dollar Index (DXY) back above the 104,000 figure, a tailwind for the USD/CHF pair. .
Early UK data showed UK business activity remained in contractionary territory, falling for six consecutive months below the 50 threshold, as revealed by the S&P Global/CIPS manufacturing PMI, which stood at 43.0 from 45.3 in July. . This calls for a pause in the Bank of England (BoE) tightening cycle, but inflation remains close to 7%. However, traders anticipate a rate hike of 25 basis points at the next meeting.
However, there is a silver lining. The Office for National Statistics has revised its assessment of the UK economy, indicating that it was 0.6% larger in the fourth quarter of 2021 than in the last quarter of 2019. This is in contrast to the previous estimate of a 1.2% reduction in size. .
GBP/USD Price Analysis: Technical Perspective
The daily chart shows the pair with a neutral to bearish bias, but could turn lower if GBP/USD makes a daily close below the June 29 low at 1.2590. Once broken, the next support would be an uptrend line drawn from the May lows around 1.2550/75, followed by the August 23 swing low at 1.2548. A decisive break and the pair could test the 200-day moving average (DMA) at 1.2414. Upside risks lie at the daily high on August 30 at 1.2746, far from the 50-day moving average at 1.2774.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
