The GBP/USD rallied for a third consecutive day on Wednesday amid broad weakness for the US dollar and mixed UK factory data.
The GBP/USD climbed to a session high of 1.5489, the pair’s highest level since May 25. The GBP/USD would subsequently consolidate at 1.5455, advancing 0.5% or 71 pips. The GBP/USD faces initial resistance at 1.5475. On the downside, initial support is located at 1.5458, the daily low.
The US dollar has weakened over the past three days after rallying on the heels of a better than expected nonfarm payrolls report last Friday. The US dollar index, a trade-weighted average of the greenback against six currencies including the pound, fell 0.3% to 94.89. The index ended the previous week at 96.35.
In economic data, UK manufacturing weakened unexpectedly in April, raising concerns about the recovery following a disappointing first quarter. Manufacturing production declined 0.4% in April, after rising 0.4% the previous month, the Office for National Statistics reported on Wednesday. A median estimate of economists forecast a gain of 0.1%.
Compared to April 2014, manufacturing production was up 0.2%, following a 1.2% increase the previous month.
Industrial production – a broader measure of factory output – rose 0.4% in April, following a 0.6% increase the prior month. This amounted to a 1.2% year-on-year gain, official data showed.
The latest figures suggest Britain’s manufacturers may be struggling with weaker international demand, despite the UK posting an improved trade deficit in April. Britain’s total trade deficit narrowed to £1.2 billion in April from £3.4 billion the previous month, the ONS reported on Tuesday.
The UK economy expanded just 0.3% in the first quarter, raising concerns that the consumer-led recovery was fading. Despite the lower reading, Britain is expected to outpace most advanced industrialized economies in growth this year, according to the International Monetary Fund’s April outlook.
In other trading, the pound continued to gain on the euro, which is still awaiting a new bailout agreement for Greece. The EUR/GBP fell 0.4% to 0.7308. The pair faces key support at 0.7294, the 100-day moving average. On the upside, initial resistance is likely found at 0.7387, the high from June 4.
Sterling lost ground against the Japanese yen, as the GBP/JPY fell 0.5% to 190.42. The pair is likely to find initial support at 190.10. Resistance is ascending from 191.95.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.