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Pound Rebounds on Strong Manufacturing PMI

The British pound has started the new trading week in positive territory. GBP/USD is trading at 1.3672, up 0.37% on the day.

Manufacturing stellar but services slip

The UK Flash PMI reports for August were mixed. Manufacturing PMI was down slightly, to 60.1 (July final: 60.4). Although a 5-month low, this read indicates strong expansion as it is well above the neutral 50-level. Consumer demand remains strong, but manufacturers are having trouble keeping up due to shortages of raw materials.

The news was not as good from the services sectors, which slipped to 55.3, a 6-month low (July final: 59.6). The sharp slowdown was a reflection of supply chain problems and staff shortages. As with manufacturing, businesses were unable to keep up with customer demand, resulting in backlogs. Still, even with this slowdown, business activity remains well into expansionary territory. Meanwhile, the CBI survey of manufacturers’ economic expectations, which was mired in negative territory for some 24 months, posted its fourth straight month of expansion. This is another indication of a robust manufacturing sector.

The British pound started the week on the right foot, as the PMIs continued to point to expansion. As well, the markets are in risk-on mode, which has curbed the dollar’s upswing which we saw last week.

The Federal Reserve will remain in the spotlight this week, with Jerome Powell delivering a much-anticipated speech on Friday at the Jackson Hole Symposium. With the delta variant of Covid continuing to grab the headlines and make investors jittery, Powell may opt to deliver a dovish message with regard to tapering. Investors are responding by purchasing Treasuries and technology stocks. If Powell’s speech is dovish, Jackson Hole could end up being a negative market-mover for the US dollar.

GBP/USD Technical Analysis

  • GBP/USD is facing resistance at 1.3800. Above, there is resistance at 1.3977
  • On the downside, 1.3659 is the first line of support. This is followed by support at 1.3524
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