British Pound (GBP) Latest: GBP/USD Bullish After Positive UK PMIs

GBP price, PMI news and analysis:

• The UK PMIs for June all came in higher than economists were expecting, with the manufacturing index just above the 50 level that separates expansion from contraction.
• That has improved the outlook for GBP/USD and the GBP crosses even though GBP/USD eased back marginally after the data.
• Earlier, the pair was given a modest boost when the White House trade adviser, Peter Navarro, said the US-China phase one trade pact remains in place after earlier saying it was “over”.
• Technically, a bull flag has developed on the GBP/USD chart, suggesting a high-volume breakout to the upside, continuing the previous trend higher.

GBP/USD outlook improves

The outlook for GBP/USD has improved after news that the “flash” purchasing managers’ indexes for the UK economy in June all rose by more than expected, with the manufacturing index just creeping above the 50 mark that separates expansion from contraction.

The PMIs were all at their highest levels for four months as some of the coronavirus lockdowns were eased. This prompted IHS Markit, which compiles the data, to note: “Looking ahead, manufacturers indicated a rise in business optimism to its highest since September 2018. Expectations of higher output in the next 12 months reflected hopes of a sustained recovery in manufacturing operations from the slump in production volumes seen during the initial phase of the Covid-19 pandemic.”

The IHS forecasting team expects the UK economy to contract by 11.9% this year before expanding by a relatively modest 4.9% in 2021, which is far more cautious than the 15% surge anticipated in 2021 by the Bank of England.

GBP/USD Price Chart, Daily Timeframe (March 5 – June 23, 2020)

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

Prior to the UK numbers, the June PMIs for France, Germany and the Eurozone as a whole all exceeded the consensus forecasts of the economists polled by the news agencies. The French data stood out in particular, with the manufacturing, services and composite PMIs all climbing back above the 50 mark that suggests expansion rather than contraction.

Earlier, GBP/USD was given a very modest boost by an improvement in risk appetite in the markets as a whole. They were taken aback when Peter Navarro, the White House trade adviser, said the US-China phase one trade pact was over – only to rally when he reversed position, saying the deal “continues in place”. This was backed by US President Donald Trump, who tweeted that it is still “fully intact”.

Bull flag improves technical outlook

Turning to the technical position, as the chart above shows a bull flag has developed in GBP/USD. This suggests a continuation of the previous upward trend, with a high-volume breakout likely to the upside. A similar bull flag has developed on the EUR/USD chart and that price already shows signs of an upside break.

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--- Written by Martin Essex, Analyst and Editor

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