GBP/USD stumbles into weekend with dire manufacturing data
The GBP/USD fell on Friday following bleak news about UK manufacturing, although equally poor US figures softened the blow for the pound against the dollar.
The announcement of the UK's manufacturing PMI for April sent the pound sterling into retreat against the dollar early in Friday trading. The pound stayed firmly below the $1.2560 mark for the afternoon of trading, an underwhelming performance given that GBP had climbed as high as $1.2643 on Thursday.
The overall theme of the week is still one of growth for the GBP/USD, with the pound veering into $1.25310 territory as markets wound down on Friday in the UK. That is a rise of around 1.3% in a week that began with the pound trading at $1.23647 at Monday's open.
Friday's trend reversal can be partially attributed to the PMI data that confirmed the severity of the decline in UK manufacturing. IHS Markit compiled and analysed the manufacturing data, which revealed that the PMI activity index plummeted to 32.6 in April.
Not only is that significantly less than the March figure of 47.8, but it was also a drop below the estimated level of 32.9. For context, any number less than 50 in this index indicates that there has been a general decline in the output of manufacturers.
The April decline is the biggest monthly fall since IHS Markit records began in 1992. With the government anticipating a decline of around a third in the nation's total economic output during the second quarter, these manufacturing figures attest to a bleak outlook for the UK economy.
Decline in manufacturing understandably not a unique phenomenon during coronavirus crisis
If the UK figures caused the GBP to stumble on Friday morning, then the release of the respective US figures contributed to a steadying of the pound in trading during the afternoon. IHS Markit announced that US manufacturing PMI had slumped to 36.1, mirroring the UK by falling below initial projections.
Combined with the news that 3.8 million jobless claims were filed in the US last week, taking the total up to 30 million since the middle of March, those manufacturing stats paint a grim picture for the immediate future of the US dollar. With 11% of the US economy reliant on the manufacturing sector, traders will justifiably be wary of the dollar's ability to post significant gains.
Respite for the dollar may come in the form of a familiar factor: the US-China trade dispute. President Donald Trump's suggestion that he has observed evidence linking the coronavirus pandemic to a laboratory in Wuhan is not exactly the hallmark of an effort to develop a productive relationship with the Chinese government.
This has sparked fears that Trump's assertions may undo the work of conciliatory talks earlier in the year, placing the future of global trade into deeper jeopardy.
Johnson returns to public eye with optimistic declarations, but no indication of end to lockdown
Prime Minister Boris Johnson conducted his first public briefing on Thursday following his return to work, bringing confident declarations that the UK had moved beyond the peak level of coronavirus infections.
That news would have ordinarily inspired faith in the GBP, but it was undercut by a number of factors. The manufacturing data ended any hopes of the GBP/USD sealing a three-day winning streak, while Johnson's briefing also reaffirmed the need for continued lockdown proceedings.
GBP/USD weekend activity to be defined by lockdown easing rumours and US-China relations
Johnson set out his government's intention to review key areas of the economy in the coming week, looking for ways to kickstart business while protecting workers' health. The next review of the UK lockdown measures is expected on Thursday 7 May.
Meanwhile, any lockdown relaxation rumours that emerge over the weekend could lift a weight off the pound ahead of Monday's open, but a commitment to a lockdown extension will make it difficult for the UK currency to enjoy similarly productive weeks against the dollar for the foreseeable future.
The USD could regain some of the losses from this week if President Trump doubles down on his stance towards China, so traders should closely monitor their Twitter feeds this weekend.
How to trade the GBP/USD this weekend
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Whether you want to go long (buy) or short (sell) GBP/USD based on the above outlook, you don’t have to wait until the markets reopen on Monday to trade.
The weekend prices for indices and forex are quoted separately to their weekday counterparts, based on our view of the prospects for that market given client business and news flow. As a result, you can use these markets to hedge against risk on your weekday positions.
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