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Home ANALYSIS

Pound holds relatively steady despite UK PMI miss

A.R Chowdhury by A.R Chowdhury
August 23, 2021
Reading Time: 2 mins read
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GBP/USD not much changed, seen slightly higher around 1.3650

Cable is keeping little changed despite the notable UK PMI miss earlier, as the report reaffirms the slowing recovery momentum in the UK economy – particularly in the services sector (the more important one for the UK).

GBP/USD D1 23-08

Of note, cable is still holding a decent bounce off 1.3600 support as FX is still largely focused on a softer dollar today amid the Jackson Hole focus.

That said, cable buyers still have work to do to convince of a significant turnaround with near-term resistance seen closer to 1.3700 in the form of the 100-hour moving average.

Any such move though is likely to only come if dollar sentiment falters further on the day as the pound isn’t getting much help from stalling recovery conditions in the UK.

The UK economy was among the frontrunners in the recovery race amid the quick pace of vaccinations. But a lot of that optimism has been watered down as peak conditions look to have passed and what’s left of that momentum is flagging.

The BOE will certainly take note of that and a major problem for policymakers now is that UK inflation/price pressures are still relatively strong and could prompt action especially when supply chain disruptions are expected to continue in the months ahead.

That’s quite the dilemma for the BOE if the recovery begins to flatline towards Q4.

If anything, the latest dent from the PMI report earlier may even be suggesting that the UK is falling behind the euro area in terms of recovery optimism now.

EUR/GBP is certainly taking note as price is seen closer to 0.8600 and contesting its 100-day moving average (red line), well off the lows earlier this month:

EUR/GBP D1 23-08

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A.R Chowdhury

A.R Chowdhury

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