GBP/USD tumbles, heading towards 1.2100 on UK PMI miss, US data beats

• The GBP/USD flubbed a one-week high after UK PMIs missed expectations.
• The Greenback extended its gains after US PMI figures broadly beat forecasts.
• Next up for the US Dollar will be a speech from Fed head Powell tomorrow, Thursday GDP.

The GBP/USD is shedding pips on Tuesday, declining from a one-week high just shy of the 1.2300 handle after UK Purchasing Managers’ Index (PMI) figures printed red while US PMI data broadly beat the Street, climbing over market forecasts and chalking in accelerating economic activity in the US economy.

With the US economy continuing to gain ground while the rest of the global economy stagnates or begins to show cracks, market sentiment is prone to downside risk-off shocks as steadily-improving economic indicators for the US decrease chances of the Federal Reserve (Fed) picking up the pace of rate cuts moving forward. 

Markets are currently hoping for Fed rate cuts to begin sometime in the back half of 2024, but a lack of weakness in the US economy bodes poorly for interest rate decrease hopes. Investors flocked to the safe-haven US Dollar on reaction to US PMI figures coming in green across the board.

UK Preliminary Services PMI inches lower to 49.2 in October vs. 49.5 expected

The seasonally-adjusted S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) gave a slight uptick to 45.2 in October, just barely beating the anticipated value of 45.0 and climbing over September’s final reading of 44.3.

At the same time, the Preliminary UK Services Business Activity Index declined to a nine-month low, printing at 49.2 for October, as compared to the final print of 49.3 in September and falling short of the expected figure of 49.5.

US S&P Global Manufacturing PMI edges higher to 50 in October, Services PMI improves to 50.9

In early October, economic activity within the US private sector showed a steady yet moderate expansion. The S&P Global Composite PMI advanced from 50.2 in September to 51.

October also saw the Manufacturing PMI climb from 49.8 to 50, while the Services PMI stepped higher, to 50.9 from 50.1. Both components of the US PMI forward-looking indicator beat expectations set by industry analysts.

With another batch of Greenback-bullish data in the books, GBP/USD traders will be looking ahead to a speech from Fed Chairman Jerome Powell on Wednesday, who will be giving opening remarks at the Moynihan Lecture in Social Science and Public Policy in Washington, DC.

Thursday will also see an advance reading of US Gross Domestic Product (GDP) figures, alongside US Unemployment Claims.

The Preliminary GDP for the US’ third quarter of 2023 is expected to increase appreciably from 2.1% to 4.3%, while Initial Jobless Claims for the week into October 20th is expected to print a slight increase of new jobless benefits seekers, from 198K to 208K, a net increase of 10K.

GBP/USD Technical Outlook

Tuesday’s backslide sees the GBP/USD facing a rejection from a bearish trendline from July’s peaks near 1.3141 after the pair failed to recapture the 1.2300 handle, and the immediate downside sees a price floor from the last major swing low into 1.2037 in early October.

Topside momentum will face stiff resistance from the downside trendline, as well as the last swing high into 1.2337, and the Sterling-Dollar pair is set for near-term consolidation if market risk appetite recovers, or an extension of bearish declines if US data continues to snub investor hopes for rate-cut inspiring weakness.

GBP/USD Daily Chart

GBP/USD Technical Levels