GBPUSD Slips As Market Defies Upbeat UK Manufacturing Data

Summary:
• GBPUSD has lost its gains on Thursday, as investors hold their horses in anticipation of UK interest rate announcement.

GBPUSD erased some of the gains made on Wednesday in Thursday’s European trading session, as traders waited for UK GDP announcement. The cable rose by 0.51% on Wednesday as the Federal Reserve kept US interest rates unchanged. The decision met market expectations and weakened the dollar against some of the leading currencies in the hours that followed. The DXY index fell by 0.43% on Wednesday after four consecutive sessions on the rise. Also, yields on benchmark 10-year and 5-year US Treasury bonds have fallen below 4.300% for the first time this week, and this will provide tailwinds to GBPUSD.

The pound has strong support from UK’s manufacturing PMI, which grew substantially by 2.4 to 49.9, beating the forecast figure of 47.9.  However, the downside to the pound is the marginal decline in services PMI to 53.4, which was below the forecast 53.8. This impacted the composite PMI figure, which came in at 52.9. The previous composite PMI stood at 53.0, and raised the bar significantly for today’s reading, which was expected to show a marginal improvement to 53.1.

However, the highlight of the day will be the UK interest rate announcement. That said, the BoE is expected to retain the current interest rates at least until the end of the first half of the year. However, the UK economy finds itself in a precarious situation, where policymakers have to balance between inflation and reviving an economy that contracted during the last two quarters.  Therefore, I cannot rule out surprises with absolute certainty.

Later in the day, the US Initial jobless claims and the Philadelphia Manufacturing Index readings will inject new volatility into the market. The former is expected to show an increase in first-time jobless claim filings by 3k to 212,000, while the latter is forecast to decline from 5.2 to -2.6.

Technical analysis

The RSI on GBPUSD points to control by the buyers, but they will need to overcome the resistance at 1.2784 to build momentum for further upside.  A move above that mark will favour control by the bulls to break the next resistance at 1.2801, beyond which the pair could test 1.2833. However, if the resistance remains at 1.2784, the sellers will be favoured to take it the support at 1.2738. A continuation of control by the sellers beyond that mark could take it to 1.2723.