Pound Calm as UK Services PMI Edges Lower

Fundamental analysis of Forex market

The British pound has started the week quietly. In the North American session, GBP/USD is trading at 1.3846, down 0.13% on the day.

The pound has pushed back into 1.38 territory, on optimism over the economy’s reopening optimism and PMI data which was better than expected. The UK was forced to delay the end of all Covid restrictions in June until July 19th. Although the Delta variant has resulted in a sharp increase in cases, the death rate has remained low, and the government is hopeful that the new ‘Freedom Day’ of July 19th will not have to be postponed.

UK business activity has been surging and the Services PMI remains well into expansionary territory. In June, the PMI came in at 62.4, down from 62.9 but ahead of the consensus of 61.7. Manufacturing and job creation data have also been robust, indicative of a strong economic recovery.

Nonfarm payrolls rise, but so does unemployment

On Friday, the pound recorded its first daily gain in a week, as the US dollar was broadly lower, despite a positive nonfarm payrolls report. The reading of 850 thousand easily beat the consensus of 700 thousand and was much stronger than the previous reading of 583 thousand. However, investors were concerned about the surge in unemployment, which jumped from 5.6% to 5.9%. This has raised speculation that the labour market is still not strong enough to pressure the Fed to tighten policy.

US companies are having trouble finding workers, and this problem is compounded by the fact that some 15.3 million Americans are receiving unemployment benefits. The shortage in labour supply in the US has led to increased wage and inflation pressures. Wages soared to 3.6% in June YoY, just shy of the estimate of 3.7%, and sharply higher than the May release of 1.9%. Higher wages will mean higher inflation, and that could put pressure on the Fed to tighten monetary policy.

GBP/USD Technical Analysis

  • There is resistance at 1.3938. Above, there is resistance at 1.4043
  • On the downside, 1.3730 is the first level of support. This is followed by support at 1.3627