Pound Sterling finds support as UK PMI beats expectations

  • The Pound Sterling (GBP) is finding support as the UK's Manufacturing PMI numbers for June exceed expectations, indicating positive economic performance.
  • Despite elevated inflation and restrictive monetary policy, the GBP remains well-supported due to strong manufacturing data.
  • Investors are closely watching global PMI numbers and the impact of interest rates on inflation, while the Pound Sterling faces pressure ahead of the release of S&P Global Manufacturing PMI data.

The Pound Sterling (GBP) has found support near 1.2660 as the United Kingdom’s global Manufacturing PMI numbers for June have outperformed expectations. The economic data jumped to 46.5, surpassing both the anticipated and previous release of 46.2. Despite the restrictive monetary policy, inflationary pressures in the UK region remain high, above 8.5%, with no signs of easing.

Investors are closely monitoring global PMI numbers to assess the impact of interest rates, which are still elevated to combat stubborn inflation. The Manufacturing PMI for June in the United Kingdom is expected to show stability but remain in contraction.

Daily market update: Pound Sterling finds support around 1.2700

The Pound Sterling is expected to face pressure ahead of the release of the S&P Global Manufacturing PMI data for June, which is projected to remain steady at 46.2. A figure below 50.0 indicates contraction. The Bank of England’s (BoE) decision to raise interest rates has put strain on economic activities in the UK, as firms are reluctant to take on fresh credit due to higher interest obligations.

BoE policymaker Silvana Tenreyro is opposed to further interest rate increases, as there is a risk of having to reverse policy sharply if it is tightened any further. However, BoE Governor Andrew Bailey supports further interest rate hikes, citing the persistent inflation in the UK economy. Bailey made a distinction between how high rates would go and how long they would need to remain at their peak during a speech at the European Central Bank (ECB) forum.

Financial markets anticipate that the BoE will raise interest rates to 6.25% from the current level of 5%. The Guardian has reported that the UK and other European powers are expected to announce plans to breach the 2015 Iran nuclear deal for the first time by confirming that sanctions on Tehran’s use of missiles will not be lifted.

Market sentiment remains quiet as investors await the quarterly earnings results. The US Dollar Index (DXY) has seen a sharp increase above 103.00 in anticipation of the United States ISM Manufacturing PMI data, which is expected to show expansion to 47.2 from the previous release of 46.9.

It is worth noting that the US Manufacturing PMI has been contracting for the past seven months and is likely to continue this trend due to the Federal Reserve’s (Fed) higher interest rates. Fed Chairman Jerome Powell reiterated that further interest rate hikes are appropriate, but the pause in June has allowed the central bank to assess monetary policy conditions.

Atlanta Fed Bank President Raphael Bostic stated last week that the central bank has reached a point where interest rates are sufficiently restrictive to bring down inflation to 2%.

Technical analysis: Pound Sterling stabilizes around 1.2660

Pound Sterling is looking to reclaim the round-level resistance of 1.2700 after a V-shaped recovery from 1.2600. The presence of the 200-period Exponential Moving Average (EMA) provides support and indicates a bullish long-term trend. The asset is trading within a Rising Channel pattern, where each pullback is considered a buying opportunity by market participants.

Momentum oscillators show signs of exhaustion in the upside momentum, although the overall upside bias has not yet diminished.

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