GBPUSD Below 1.3700 as UK Woes Persist

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Market Drivers May 1, 2018
UK PMI misses weakest since Nov. 2016
Dollar index at January highs
Nikkei 0.18% Dax closed
Oil $68/bbl
Gold $1309/oz.
Bitcoin $9025

Europe and Asia:
AUD RBA stays on hold
GBP UK PMI 53.9 vs. 54.8 eyed

North America:
USD ISM Manufacturng 10:00

UK PMI manufacturing report hit its lowest level in 17 months sending cable tumbling in early London trade as the pair fell through the 1.3700 level breaking key support.

UK PMI printed at 53.9 versus 54.8 eyed as data once again showed a slowdown in UK economic activity. According to Markit, “The latest survey provided further evidence of a slowdown in the rate of manufacturing expansion. Growth of output and new orders eased, while business optimism dipped to a five-month low. Falling backlogs of work, supply-chain constraints and rising stocks of finished goods also signalled that output growth will remain subdued in the coming months.”

The news provides yet another problem for BOE which was all set to hike rates in its upcoming meeting in May. Given the deceleration of activity which is now dangerously flirting with recessionary levels, the MPC may have to rethink its hawkish stance and keep rates stationary for the time being. The key event for cable traders this week will be Thursday UK PMI Services report which is already approaching the 50 boom/bust level. If the data does not improve in UK’s largest sector, chances of a rate hike are sure to drop and GBPUSD could test 1.3500 as a result.

Cable was not the only pair to suffer against the buck. Dollar flows were strong across the board with dollar index hitting its best level since January. EURUSD dropped below the 1.2050 level and could test the key 1,2000 support as the day proceeds while USDJPY inched above 109.50 as the rally towards 110.0 remains in place.

Today the markets will get a look at ISM Manufacturing data and unless the report misses badly, dollar rally should continue on pace. The greenback is now benefiting from both a resolutely hawkish Fed and a slowdown in the rest of the G-7 universe. Although the unit is getting overbought, fundamentals continue to favor further gains as long as US data holds.

Boris Schlossberg
Managing Director

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