GBP/USD - Pound Shrugs Off Soft Construction PMI

Includes: FXB, GBB, UDN, USDU, UUP
by: Dean Popplewell

By Kenny Fisher

The British pound is almost unchanged in the Monday session. In North American trade, GBP/USD is trading at 1.2956, up 0.01% on the day. On the release front, British Construction PMI slowed to 51.1, short of the estimate of 52.1 points. This marked the weakest reading since September 2016. US banks are closed for the Labor Day holiday, so traders can expect a quiet North American session. On Tuesday, the UK releases Services PMI, which is expected to dip to 53.5 points.

It was a disappointing end to the week, as US employment numbers were unexpectedly soft on Friday, but the dollar shrugged off the disappointing numbers and held its own against the pound. Nonfarm employment change slowed to 156 thousand, well below the estimate of 180 thousand. This marked a 3-month low. However, with the US labor market still close to capacity (the unemployment rate is just 4.4%), the markets can be forgiving about a softer nonfarm payroll report.

Wage growth, or the lack of it, is a more pressing concern. Average Hourly Earnings posted a small gain of 0.1%, missing the estimate of 0.2%. This was down from 0.3% in the previous report, and matched the weakest gain seen in 2017. The lack of wage gains has impacted on inflation levels, which remain well below the Fed's inflation target of 2%. Soft inflation has dampened enthusiasm for a final rate hike in 2017, with the odds of December increase pegged at just 37%.

The Brexit negotiations continue to grind slowly, causing concern in both Brussels and London. A third round of talks ended last week in Brussels inconclusively, as the head of the EU team, Michel Barnier, complained about the pace of progress.

Britain and the EU remain far apart on a range of issues and even the scope of the talks remain in dispute. Britain wants to discuss a future trading relationship with the EU at the same time that points in contention are dealt with, but the Europeans insist on solving the contentious issues first, such as the size of Britain's bill and the jurisdiction of the European High Court on European citizens living in the UK. With plenty of distrust between the sides, the negotiations could grind to a halt if both sides don't show greater flexibility, and such a scenario would likely take a toll on the British pound.

GBP/USD Fundamentals

Monday (September 4)

  • 4:30 British Construction PMI. Estimate 52.1. Actual 51.1.
  • 19:01 British BRC Retail Sales Monitor.

Tuesday (September 5)

  • 4:30 British Services PMI. Estimate 53.5.

*All release times are GMT

*Key events are in bold

GBP/USD for Monday, September 4, 2017

GBP/USD September 4 at 11:45 EDT

Open: 1.2953 High: 1.2967 Low: 1.2830 Close: 1.2956

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.2767 1.2865 1.2946 1.3058 1.3159 1.3267
  • GBP/USD showed little movement in the Asian session. The pair edged lower in the European session but recovered. GBP/USD is steady in North American trade.
  • 1.2946 was tested earlier in support and is a weak line.
  • 1.3058 is the next resistance line.

Further levels in both directions:

  • Below: 1.2946, 1.2865, 1.2767, 1.2639
  • Above: 1.3058, 1.3159 and 1.3267
  • Current range: 1.2946 to 1.3058

OANDA's Open Positions Ratio

In the Monday session, GBP/USD ratio is showing long positions with a slender majority (52%). This is indicative of slight trader bias towards GBP/USD breaking out and moving higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.