GBP/USD could slump over weekend as grim PMI data begins to bite
Sterling looks set to slump against the Dollar this weekend, as increasingly dire PMI data from the UK retail and construction sectors begin to take a toll.
As markets closed on Friday, it became clear that the increasingly grim PMI data first released on Thursday was finally beginning to take a toll on the value of Sterling. Initially, currency watchers had assumed that Sterling had shrugged off the news that the UK Composite Purchasing Managers' Index (PMI) had fallen to a new record low of 12.9 from 36.0 in March, with GBP/USD actually gaining on Thursday to $1.2385, a bump of 0.4%.
However, forex markets on Friday afternoon began to show signs of a bearish market for the pound, with the currency sliding slightly overall to 1.2333 against the Dollar in the final hours before markets closed. All of this indicates that GBP/USD is in for a rough weekend ahead, and could slide further over the next 48 hours. Let's take a closer look at the GBP/USD forecast for the weekend.
UK PMI data worst since records began
The PMI news that came out of the UK this week reflected the most significant loss of business confidence since records began in 1945. This was coupled with a statement from the Bank of England predicting that the UK economy was facing the most severe contraction "in centuries", meaning that even the Great Depression is likely to be eclipsed by the coming storm.
While that record drop largely reflects manufacturing output, more PMI data released recently has shone a light on other beleaguered sectors. The PMI for the services sector, which makes up 80% of the UK economy, dropped from 34.5 to 12.3, another all-time record.
It was also revealed today that monthly retail sales in the UK have collapsed, with this release of this data coinciding with a sharp drop in GBP/USD on Friday morning.
A bearish market for GBP/USD this weekend
Although the US economy is hardly in good health at the moment, it seems that Sterling is bearing the brunt of the bad news for now. The USD has rallied as investors have piled into the safe-haven currency of choice, with the USD Index rising above 100.00 today for the first time in days.
The USD has risen against a number of major currencies this week, including the Euro and Swiss Franc, whilst see-sawing against non-European currencies like the Japanese Yen and Australian Dollar. It is entirely possible that the brief rally seen yesterday for GBP/USD was little more than the result of a delayed reaction in the markets.
As the scale of the damage to the British economy continues to sink in over the weekend, it is unlikely that sentiments will improve, meaning that we can likely expect GBP/USD to sink further. Next week a number of equally important economic reports are due to be released in the UK, including data on quarterly house prices, domestic car production, and BoE consumer credit levels.
Since virtually nobody expects any of these reports to yield good news in the week ahead, expect that negative sentiment to drag Sterling down against the Dollar this weekend.
How do I participate in weekend trading?
IG is currently the only broker in the UK to offer weekend trading on GBP/USD, with most other brokers offering trading exclusively on Monday to Friday. In addition to this pairing, IG allows members to trade on indices like the Dow Jones, DAX, and FTSE 100.
Our weekend markets give you the ultimate flexibility to be agile and reactive to fundamentals, such as breaking news on the coronavirus outbreak so that you never miss a chance to trade GBP/USD.
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