- GBP/USD is stable around 1.2690 despite the slowdown in US manufacturing activity.
- UK data shows a slight improvement but remains in recessionary territory, raising economic concerns.
- Speculation about a Fed rate hike weighs on GBP/USD, while the US dollar strengthens against a basket of currencies.
GBP/USD held firm at the beginning of the second half of the year, around the 1.2695 area; Data releases in the United States (US) showed a slowdown in manufacturing activity. For its part, data from the United Kingdom showed a slight improvement, but remained in recessionary territory. At the time of writing, GBP/USD is trading at 1.2690, virtually unchanged.
US manufacturing slowdown and UK recession concerns weigh on GBP/USD stability
The Institute for Supply Management (ISM) revealed its June manufacturing PMI survey, which showed business activity deteriorating further, as data fell into contraction territory at 46.0, down from May’s 46.9 and estimates of 47.0. The data highlighted that input prices continued to slow, a sign that inflation is moving lower amid 500 basis points of rate hikes from the US Federal Reserve (Fed).
GBP/USD reacted higher to the data, cutting speculation on the Fed’s two rate hikes. The odds of a 25 basis point hike in July remained at 89.3%, above Friday’s high past, the CME’s FedWatch tool reported, while for November, the odds fell from 37% to 34%.
Last week’s data eased US recession fears, after first-quarter Gross Domestic Product (GDP) topped preliminary figures, opening the door for further tightening. However, US inflation data was softer than estimated, so traders braced for a less aggressive Federal Reserve.
The Dollar Index, which measures the value of the Dollar against a basket of six currencies, rose 0.08% to break above 103.002 again, putting a headwind for GBP/USD.
In the UK, the S&P Global/CIPS manufacturing PMI for June came in at 46.5, above estimates of 46.2 but down from 47.1 for May, giving preliminary signs of an economic slowdown. In the UK, recession fears have increased, and the Bank of England (BoE) is expected to continue to tighten monetary conditions. Money market futures estimate that the BoE would hike rates by at least 6%, marking the most aggressive tightening cycle among major pairs. Despite the fact that the British pound (GBP) could appreciate in the near term, recessionary risks have increased, suggesting that despite the higher rates, GBP/USD could depreciate, as traders looking for safety are likely to they would buy the US dollar.
GBP/USD Price Analysis: Technical Perspective
The GBP/USD pair maintains its bullish bias, although it is forming a doji after failing to break above the 1.2700 area, suggesting a short-term drop towards the 20-day EMA at 1.2683 or below could pave the way for buyers to place further bets as GBP/USD could retest year-to-date highs at 1.2848. On its way north, GBP/USD buyers should clear 1.2700 and the June 21 daily high at 1.2802. Conversely, if the GBP/USD bears drag prices below the June 29 swing low, seen as intermediate support at 1.2590, it will pave the way for a test of 1.2500 and probably the 100 day EMA. at 1.2428.
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.
