GBP/JPY: From bad to worse for the pound

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.

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 Articles

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.