- Business activity in Britain’s manufacturing sector improved more than expected.
- Last week, the pound hit a one-year high as bets on a BoE rate cut fell.
- Economists expect the US economy to grow by 2.0% in the second quarter.
The GBP/USD forecast points south, although the pair recovered slightly following better-than-expected PMI data. At the same time, the dollar remained stable ahead of US data on GDP and inflation.
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Data on Wednesday revealed that business activity in Britain’s manufacturing sector improved more than expected. The PMI rose from 50.9 to 51.8, showing continued expansion, better than the forecast of 51.1.
Meanwhile, services sector activity also improved from 52.1 to 52.4. However, the figure narrowly missed the estimate of 52.5. Expansion in the manufacturing and services sectors could further raise the prospect of a rate cut by the Bank of England. In particular, bets for a cut in August have fallen since the last inflation report showed high pressures on service prices.
If the Bank of England continues to delay tapering, the pound will continue to gain ground against other major currencies, including the dollar. The fallout from BoE rate cuts saw the pound hit a one-year high last week.
Meanwhile, the prospect of a Fed rate cut has become clearer, with investors fully pricing in a rate cut in September. Therefore, the US central bank is likely to start reducing borrowing costs before the Bank of England. However, investors will look to GDP and inflation data before that.
Economists expect the economy to grow by 2.0% in the second quarter, up from a 1.4% expansion in the first quarter. Meanwhile, core PCE could ease from 2.6% to 2.5% in June.
GBP/USD key events today
- US manufacturing PMI
- US flash services PMI
GBP/USD Technical Forecast: Bears weaken soon after takeover
On the technical side, the GBP/USD price broke below the 1.2900 support level. However, the break is weak as the price action shows a weakening bearish momentum. The price is the making of small body candles. At the same time, it remains close to the 30-SMA, a sign that the bears are not strong enough to make big swings.
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Notably, the trend recently reversed when the price broke below the 30-SMA. A continuation of this trend would allow the price to revisit the key level of 1.2800. However, if the bears are not strong enough to find a foothold below 1.2900, the bulls could re-emerge and push above the SMA.
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