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Pound Drifting ahead of Manufacturing PMI

The British pound is almost unchanged on Wednesday. In the European session, GBP/USD is trading at 1.3838, down 0.01% on the day.

British GDP, which was released earlier today, was a yawner as far as the British pound was concerned. Second-estimate GDP for Q1 came in -1.6% MoM, revised downwards from -1.5%. This follows a gain of 1.3% in Q4. On an annualized basis, GDP came in at -6.1%, matching the consensus.

The UK is again struggling with Covid, as the delta variant has caused a resurgence in infections. The government was forced to suspend ‘Freedom Day’, when all health restrictions were to be lifted, from June 21 to July 19. This will no doubt have a negative effect on economic activity. Still, the prolonged battle against Covid appears to be going in the right direction, despite this recent setback.

In the US, the focus is on employment data, particularly the June nonfarm payroll report on Friday. Ahead of NFP, the US released the ADP Employment report earlier today, with a gain of 692 thousand. This beat the estimate of 600 thousand, although it was considerably lower than the previous reading of 886 thousand. If NFP can follow suit and also outperform, it could push the US dollar higher.

The US recovery from the Covid downturn has been impressive, but job creation has been less robust than many experts expected. One reason is that many workers are still receiving unemployment benefits and are in no rush to fill the many vacancies that are available. We are no longer hearing about prints of one million+, but job creation is moving in the right direction, and we can expect better numbers in the second half of the year if the economic recovery deepens.

GBP/USD Technical Analysis

  • There is resistance at 1.3993, protecting the symbolic 1.40 level. Above, there is resistance at 1.4105
  • On the downside, 1.3778 is the first level of support. This is followed by a monthly support line of 1.3675
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