GBP/USD Analysis & Talking Points
- UK Service Sector Contracts
- Political Uncertainty Typically Overstates Economic Weakness
Today’s UK Services PMI rounded a hat-trick of contractionary readings, resulting in the all sector PMI posting its first back to back contraction since 2012. Alongside this, IHS Markit highlighted that at current levels point to GDP falling by 0.1% in Q3, which if indeed was the case, the UK would slip into a technical recession. That said, the PMI surveys have typically overstated the weakness of the economy during times of heightened political uncertainty.
However, one of the more concerning highlights within the report had been the weakness in employment with IHS Markit noting that the services sector saw the biggest reduction in employment since 2010, therefore reinforcing the Bank of England’s view that “the labour market does not appear to be tightening further, with official and survey measures of employment growth softening”.
In reaction the PMI miss, the Pound initial dipped, however, the move was relatively contained given that politics remains the key driver for the Pound at the current stage. As such, following PM Johnson’s Brexit proposals to the EU, focus will be on the response from the EU as well as Ireland.
GBPUSD PRICE CHART: 1-MINUTE TIME FRAME (INTRADAY)
For a more in-depth analysis on FX, check out the Q3 FX Forecast
--- Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.mcqueen@ig.com
Follow Justin on Twitter @JMcQueenFX
