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British Pound (GBP) Latest: UK PMIs Improve GBP/USD Outlook Modestly

British Pound (GBP) Latest: UK PMIs Improve GBP/USD Outlook Modestly

2020-05-21 09:00:00
Martin Essex, MSTA, Analyst
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GBP price, news and analysis:

  • UK purchasing managers’ indexes for May beat expectations but still point to an economic contraction.
  • The numbers gave GBP/USD a mild boost but it continues to trade sideways within a triangle pattern on the chart, close to the 1.22 level and showing no signs yet or breaking either trendline support or resistance.
  • Like other ‘risk on’ currencies, GBP is caught between concerns on the one hand about the long-term economic impact of the coronavirus and rising US-China tensions, and enthusiasm on the other about the gradual end to lockdowns in many countries.

GBP/USD outlook improves after PMIs

The British Pound edged ahead Thursday after a batch of better than expected UK purchasing managers’ indexes for May. The manufacturing PMI came in at 40.6, above both the previous 32.6 and the 36.0 predicted by economists. The services PMI was at 27.8, up from 13.4 and above the expected 25.0. The composite index was at 28.9, up from 13.8 and above the forecast 25.0.

However, that left all three indexes well below the 50 level that separates expansion from contraction and prompted IHS Markit, which compiles the figures, to comment that the pace of decline remains far worse than at any point during the global financial crisis.

The data, therefore, improve only modestly the outlook for GBP/USD, which continues to trade sideways with little sign yet of breaking either to the upside or the downside, caught between concerns about the long-term economic impact of the coronavirus pandemic in the UK and globally, and optimism about a recovery as countries gradually ease Covid-19 restrictions.

In addition, there is some concern in the markets that US-China relations are worsening again. The US Senate passed legislation Wednesday that could prevent some Chinese companies from listing their shares on US exchanges unless they follow standards for US audits and regulations.

GBP/USD Price Chart, Daily Timeframe (February 20 – May 21, 2020)

Latest GBP/USD price chart.

Chart by IG (You can click on it for a larger image)

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Domestically, GBP’s next major move could depend on the progress – or more likely lack of progress – in the Brexit talks between the UK and the EU. Meanwhile, traders need to watch out for any more signals about the possibility of negative interest rates in the UK after Bank of England Governor Andrew Bailey’s comments Wednesday that “we do not rule things out as a matter of principle” but “do not rule things in either”. Bailey added that “now is the right time to review all the tools we are using.”

The UK sold government bonds with a negative interest for the first time this week, with an auction resulting in the sale of £3.8 billion of three-year gilts at a yield of minus 0.003% following strong demand.

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We look at Sterling regularly in the DailyFX Trading Global Markets Decoded podcasts that you can find here on Apple or wherever you go for your podcasts

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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