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The GBP/USD has slid for the seventh day. The Sterling has been impacted by weak UK PMIs and the overall gloomy UK economic future perspective. The UK PMI shows the largest month-on-month drop in 11 months, signaling a potential weakening of post-pandemic spending.
The Sterling is even seen as heading for longest run of losses since March 2020 as traders dial down their forecast for UK interest rate rises. Sterling is down a quarter of a cent today at $1.281, only one week after hitting 15-month highs of $1.314 against the US dollar. Sterling came under more pressure after a survey of UK purchasing managers found that UK economy is close to stalling this month.
Market anticipation builds for the FOMC decision, on Wednesday, and Powell’s press conference thereafter, with the GBP/USD trajectory hinging on the outcome.
On the US front; business activity slowdown was revealed by mixed readings, with the Manufacturing PMI showing activity at 49, above June’s 46.3 and estimates, but remained in recessionary territory.
The Services PMI clung to expansionary territory at 52.4, trailing estimates and the previous month at 54.4, dragging the composite number to 52 in July, from 53.2 in June, falling to a five-month low. This weighed on the GBP/USD pair, which began dipping during the European session.
Rising interest rates and the higher cost of living appear to be taking an increased toll on households, dampening a post-pandemic rebound in spending on leisure activities. Late in the week, the Fed will deliver its interest rates decision, with markets estimating a 25-bps increase in the Federal Funds Rates (FFR) to 5.25-5.50%.
However, Fed Chair Jerome Powell’s press conference is eyed because the swaps market does not show another Fed hike. Hawkish remarks by Powell could rock the boat, with the GBP/USD extending its losses toward the 1.2700 area, while dovish remarks could lift the pair toward 1.2900 or beyond.
The GBP/USD prolongs its downtrend, past below the 61.8% Fibonacci retracement at 1.2851, which could open the door for further losses past the 1.2800 mark. If GBP/USD breaks the 1.2800 floors, the next support would emerge at the 78.6% Fibonacci level at 1.2773 before extending to the 50-day EMA at 1.2717. Conversely, if GBP/USD stays afloat at 1.2800, that could open the door to reclaiming the 20-day EMA, followed by 1.2900.
