The Pound has begun the week on the backfoot as Brexit uncertainty continues to remain rife. Comments made by Barnier over the weekend that he strongly opposes aspects of PM May’s Chequers plan has weighed on GBP. However, despite the scepticism, PM May continues to stand firm her Brexit plan. As the House of Commons returns from the summer holiday, Brexit is likely to dominate and keep the Pound volatile. The GBP/USD pair accelerated its decline and hit fresh three-day lows at 1.2881 following the release of dismal UK manufacturing PMI report, which showed the UK’s manufacturing sector activity grew at the weakest pace in 25 months (52.8 actual versus 53.8 expected). As of writing this article, the pair is trading at 1.2883 down 0.58% on the day.
Brexit Talks Remain Main Focus but PMI Data Provides Volatility in Current Market session
Earlier today, the cable opened with a bearish gap of about 35-pips, as the Asian traders reacted to the weekend’s developments around the Brexit talks. Meanwhile, a phase of bullish consolidation seen in the US dollar across its main competitors, in the wake of mounting global trade war fears and Emerging Markets (EM) currency-crisis, also keeps the bearish momentum intact around the spot. Despite Labour Day holiday in US, the Greenback remains firm in broad market. The headline PMI fell to its lowest level for over two years, as growth of output and new orders slowed and the pace of job creation slumped to near stagnation. Based on its historical relationship with official ONS data, the latest PMI report is broadly consistent with zero growth in manufacturing production, meaning the sector will likely fail to provide any support to the wider UK economy in the third quarter.
In the day ahead, the pair will continue to track the broad market sentiment and Brexit related news for further momentum, as trading is expected to remain light on US Labour Day holiday. When looking from a technical perspective, near-term bulls are running out of steam as strong bullish momentum started to ease and slow stochastic continues to trend lower following reversal from overbought territory. If the pair closes for the day below support level of 1.2852 we can assume it as a trend change in favor of US Greenback while a close above said level would indicate short term consolidation or signs of range bound movement.