Sterling Damaged by Feeble UK PMIs

British Pound – GBP/USD and EUR/GBP Charts and Analysis

• BoE rate hikes are being pared back after the latest S&P PMIs
• Cable touches a fresh multi-month low

According to the latest S&P PMIs for August, the cost of fighting inflation is ‘carrying a heavy cost in terms of heightened recession risks’. The Composite Output Index fell to a 31-month low of 47.9, Services Business Activity fell to a 7-month low of 48.7, while the Manufacturing PMI slumped to a 39-month low of 42.5. All three are in contraction territory (below 50).

According to Chris Williamson, chief business economist at survey provider S&P Global Market Intelligence, ‘A renewed contraction of the economy already looks inevitable, as an increasingly severe manufacturing downturn is accompanied by a further faltering of the service sector’s spring revival. The survey is indicative of GDP declining by 0.2% over the third quarter so far’.

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UK gilt yields fell sharply post-release with the rate-sensitive two-year shedding 19 basis points, while the benchmark 10-year lost over 16 basis points, as traders pared back the number of expected Bank of England rate hikes in the coming months. While a 25 basis point interest rate hike is expected at the September 21 meeting, further hikes are becoming increasingly unlikely according to market pricing.

Cable touched an early peak of 1.2765 today ahead of the data release before turning sharply lower post-release. GBP/USD hit 1.2615, its lowest since June 30, before making a marginal recovery to a current level of 1.2675. We looked at cable in our weekend article and suggested a 1.2620-1.2820 range should hold ahead of the Jackson Hole Symposium. Five pips out but this range remains in place.

British Pound (GBP) Latest: GBP/USD Arm Wrestle Continues, Jackson Hole Nears

GBP/USD Daily Price Chart August 23, 2023

See how GBP/USD Traders are Positioned

Another Sterling pair we looked at in the weekend article was EUR/GBP when we suggested that support around the 0.8500 level was under pressure. This level broke quickly, after the release of awful German and Euro Zone PMIs, before popping higher after the UK PMI release. Traders who have been playing the recent EUR/GBP range should be wary that the 0.8500 support level may come under pressure again.

EUR/GBP Daily Price Chart – August 23, 2023

What is your view on the British Pound – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.