It goes from bad to worse for the pound

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By :  ,  Financial Analyst

Things have gone from bad to worse for the pound. After being knocked by a poor construction PMI earlier in the day, sterling slumped to hit a new session low moments ago in reaction to a speech by Bank of England Governor Mark Carney.

Mark Carney said the BoE expects economic growth in the second half of the year to be considerably weaker and that it will re-assess Brexit and trade tension in August. However, he re-iterated that if Brexit progresses smoothly, then limited and gradual interest rate rises would be needed. This comes after Moody’s warned over the economic impact of a no-deal Brexit. The rating agency now believes the UK “would likely enter a recession,” should it crash out of the EU without a deal. Earlier in the day, we learnt that activity in the construction industry slumped sharply in June, to its lowest level in a decade, as purchasing managers in housebuilding, commercial and civil engineering all reported sharply deteriorating conditions. Confidence was hit because of ongoing Brexit uncertainty, causing delays in projects. The IHS Markit’s Purchasing Managers’ Index (PMI), slumped to 43.1 in June, the lowest level since April 2009. This easily missed expectations of a rise to 49.3 from 48.6 in May.

The very poor construction PMI comes on the back of a disappointing manufacturing showing from the day before, when the sector’ PMI printed 48.0 compared to 49.4 expected and last. If the services PMI also misses the mark tomorrow, then it will be a hat-trick of own goals for the UK economy. Expectations point to an unchanged reading of 51.0. As we move towards the latter parts of the week, the focus will shift to the US ahead of the nonfarm payrolls report on Friday.

Ahead of the UK services PMI, the GBP/JPY looks like it may have resumed its bearish trend after the latest rebound attempt stalled around the fast moving 21-day exponential average. Yesterday, the Guppy failed to hold above short-term resistance at 137.20 after a brief break higher. This has ensured that – for now, at least – the series of lower highs and lower lows remain in place. As such, we would not be surprised if rates were to break the recent low at 135.38 and head towards the 2019’s low from January at just below 132.00 handle. We would only drop this bearish view in the event price breaks the most recent high at 138.33.

Source: Trading View and FOREX.com.

Related tags: Forex GBP

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