Pound Sterling meets tough resistance as UK’s factory activity contracts for 12th straight month – Crypto News – Crypto News
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GBP/USD slides to over one-month low, below 1.1800 mark amid sustained USD buying GBP/USD slides to over one-month low, below 1.1800 mark amid sustained USD buying

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Pound Sterling meets tough resistance as UK’s factory activity contracts for 12th straight month – Crypto News

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  • Pound Sterling tests last week’s low as UK’s preliminary S&P Global PMI remained downbeat.
  • United Kingdom’s factory activity registers 12th straight contraction as the BoE has raised interest rates aggressively.
  • The economic outlook doesn’t look promising as more interest rates by the UK central bank are in the pipeline.

The pound sterling (GBP) surrenders its entire gains posted on Friday as the United Kingdom’s preliminary S&P Global PMI data for July came in below expectations. The GBP/USD pair drops as contracting factory activity and a bleak service sector builds pressure on the Pound Sterling. Britain’s economic prospects are facing the wrath of elevated inflation and higher interest rates by the Bank of England (BoE).

Firms in the United Kingdom have postponed their current demand for credit to avoid paying higher interest obligations. The country’s economic outlook Doesn’t look promising as the UK central bank is expected to increase interest rates further in August. Going forward, employment conditions are expected to face pressure from weakening economic activity.

Daily Digest Market Movers: Pound Sterling bears in action as July PMI remain downbeat

  • Pound Sterling faces selling pressure as the United Kingdom’s preliminary PMI data showed that economic activity remains weaker than expected in July.
  • The UK Manufacturing PMI contracted to 45.0, down from the 46.1 expected and the 46.5 registered in June. This signals the 12th straight contraction in the country’s manufacturing sector. A figure below 50.0 is considered a contraction.
  • Britain’s preliminary Services PMI dropped to 51.5 from the consensus and the earlier release of 53.0 and 53.7, respectively.
  • Economic activity appears to be facing the wrath of restrictive monetary policy by the Bank of England.
  • Investors look mixed about the scale at which the Bank of England will raise interest rates in August.
  • Inflation pressures in the United Kingdom look persistent even as the Consumer Price Index (CPI) softened in June as consumer spending remains resilient.
  • Monthly retail sales expanded at a pace of 0.7% in June, more than the 0.2% increase expected and accelerating from the 0.1% seen in May. On an annual basis, consumer spending contracted 1.0%, softer than the estimates of a 1.5% decline and the prior release of a 2.3% decrease.
  • In spite of a decline in inflation, consumer spending picks up momentum as lower gasoline prices provide higher disposable income to households.
  • Sales at food retailers were weak, possibly because expenditure on dining out was higher due to an extra public holiday to mark King Charles’ coronation.
  • Resilient momentum in consumer spending has offset the comfort provided by surprisingly softer inflation data.
  • Expectations of a big rate hike from the BoE in August have made a comeback as upbeat retail demand could propel inflationary pressures again.
  • Soft inflation in June offers relief to BoE policymakers, but the upside risks of elevated core inflation are still solid.
  • The US Dollar Index (DXY) delivers a north-side break after an extended consolidation around 101.00 as investors turn cautious ahead of the Federal Reserve’s (Fed) monetary policy meeting.
  • An interest rate hike of 25 basis points (bps) is anticipated from the Fed, which will push interest rates to the 5.25%-5.50% range.
  • Investors expect interest rates to peak on July 26 and then to remain stable for the rest of the year.
  • Investors will keep an eye on the Fed’s interest-rate guidance. A hawkish guidance might trigger a risk-off mood.
  • United States consumer spending grew at a marginal pace in June due to declining demand for big-ticket items.

Technical Analysis: Pound Sterling corrects near 20-day EMA

The Pound Sterling meets stiff resistance below 1.2900 as the market mood has turned cautious. The Cable is expected to test its recent low of 1.2816 recorded on Friday. Earlier, the asset delivered a recovery move after gauging support below the 20-day Exponential Moving Average (EMA). The Cable would find next support near the 50-day EMA around 1.2700 if it continues to decline further. The upside momentum has completely faded, but the long-term trend is still bullish.

Pound Sterling FAQs

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

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