The pound has edged downwards on Tuesday, and is trading very close to the 1.53 level. in the North American session. The pound failed to take advantage of UK Construction PMI, which hit a seven-month high. Later on Tuesday, the UK will release the BRC Shop Price Index. In the US, today’s highlight was Trade Balance. The key release posted a higher deficit than the previous release, but managed to beat the estimate.
The pound started the week on the right foot, gaining ground after a positive UK Manufacturing PMI. The key index barreled across the 50-point level for the first time since February, posting a reading of 51.3 points. This was above the estimate of 50.3 points. This was followed on Tuesday by another strong PMI, as UK Construction PMI pushed above the 50-point line, for the first time since August 2012. The key indicator climbed from 49.4 points to 50.8 points, surpassing the estimate of 49.7 points. A reading above 50 indicates expansion, so this reading was certainly good news for the markets. Will Wednesday’s Services PMI follow suit?
In the US, we continue to see weak numbers from key releases. Last week, unemployment, GDP and housing numbers missed their estimates, and this week started in much the same fashion, as ISM Manufacturing PMI dropped below the 50-point level. The index posted a reading of 49.0 points, missing the estimate of 50.6 points. This marked the first time in 2013 that the PMI has pointed to contraction in the manufacturing sector.
Quantitative easing has become a hot topic, as the markets ponder whether the US Federal Reserve will scale back the current round of QE. Fed policymakers, including Fed Chair Bernanke, have hinted that QE could be wound up in the next few months. However, with the US continuing to alternate between good and bad economic releases, the Fed is unlikely to act before it is convinced that the US economy is improving. Much of the volatility we are seeing from the major currency pairs can be attributed to market uncertainty about what action the Fed will take. Further hints from the Fed about scaling back QE will likely affect the currency markets.
GBP/USD June 4 at 15:00 GMT
GBP/USD 1.5301 H: 1.5342 L: 1.5274 
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GBP/USD has reversed direction, and has posted some losses on Tuesday, as it hovers close to the 1.53 line. The pair is testing resistance at 1.5309. This is followed by strong resistance at 1.5432. On the downside, GBP/USD is receiving support at 1.52o3, which is protecting the 1.52 line. The next support level is at 1.5111.
Current range: 1.5203 to 1.5309
Further levels in both directions:
- Below: 1.5203, 1.5111, 1.5047, 1.5000 and 1.4873
- Above: 1.5309, 1.5432, 1.5577, 1.57 and 1.5802
The GBP/USD ratio is back in action after a lull on Monday. The ratio is pointing to movement towards long positions. This is not reflected in the current movement of the pair, as the pound has edged lower. We continue to see a majority of short positions, indicative of a bias towards the US dollar continuing to push higher against the pound.
GBP/USD Fundamentals
- 8:30 British Construction PMI. Estimate 49.7 points. Actual 50.8 points.
- 23:o1 British BRC Shop Price Index
- 12:30 US Trade Balance. Exp. -41.1B. Actual -40.3B
- 14:00 IBD/TIPP Economic Optimism. Estimate 50.2 points. Actual 49.0 points.
- 17:30 US FOMC Member Esther George Speaks