The British pound has reversed directions today and is in negative territory. In the European session, GBP/USD is trading at 1.1778, down 0.44%.
Weak US New Home Sales sends pound higher
Tuesday was an interesting day for the pound. Despite weak manufacturing data out of the UK, GBP/USD gained close to 1% before paring some of these gains. The reason for the pound’s spike came from across the pond, as US New Home Sales for July was much weaker than expected, with a reading of 511 thousand. This was below the estimate of 575 thousand and the June reading of 585 thousand.
The pound promptly jumped after this housing release, as soft data raised market hopes that the Federal Reserve would ease up on interest rates due to a cooling economy. We could see the pound react to upcoming key US releases – Durable Goods Orders today and Preliminary GDP on Thursday. If these readings are weaker than expected, I would not be surprised to see the pound gain ground.
The UK Manufacturing PMI slid into contraction territory in August. The index fell to 46.0, down from 52.1 in July and below the estimate of 51.1. The dismal reading is part of a pan-European downward trend in manufacturing, which has been made worse by the prolonged war in Ukraine. Output has been hampered by higher costs, a drop in demand and supply chain problems.
The week wraps up with Fed Chair Powell addressing the Jackson Hole Symposium. The Fed has been hammering out a hawkish message, saying it plans to continue raising rates, as the titanic battle against inflation is far from over. The markets haven’t listened all that carefully, ever since the drop in US inflation raised speculation that the Fed might make a U-turn and ease up on policy. It will be interesting to see how the markets react to what is expected to be a hawkish message from Powell.
- GBP/USD faces resistance at 1.1924 and 1.2005
- There is support at 1.1699 and 1.1568
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