Saturday, April 21, 2018
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GBP/USD: USA and China trade wars and risk aversion could hurt Pound, Keep Eyes on UK PMI
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Keep Eyes on UK PMI

  • UK PMI expected to show a slight drop in the pace of expansion in manufacturing activity.
  • Trade wars, risk aversion could hurt Pound.
  • Lowered growth/inflation expectations in the advanced world could benefit USD.

The GBP/USD avoided a break below 1.40 during the Easter holidays, but the relief will likely be short-lived if the trade war fears drive stocks lower and UK PMI misses estimates by a wide margin.

As of writing, the GBP/USD pair is mildly bid around 1.4060, but well below the last week’s high of 1.4245.

The British Pound has zero anti-risk appeal, given the massive current account deficit and Brexit uncertainty. Hence, the currency could take a hit if the European stocks drop sharply in response to rising odds of a full-blown US-China trade war.

 

Focus on UK PMI

UK manufacturing PMI, due at 08:30 GMT, is expected to show the pace of expansion in the activity slowed to 54.5 index points in March vs. 55.2 index points in February.

A below-forecast print could only make matters worse for Pound. Meanwhile, a better-than-expected number could strengthen the bid tone around the GBP, helping it counter the negative impact of a possible risk aversion in the stocks.

Also, note that the greenback will likely benefit from the lowered inflation/growth expectations as represented by the pullback in the government bond yields across the advanced world. So, a big move to the upside is easier said than done.

GBP/USD Technical Levels

Support levels: 1.4010 1.3985 1.3940

Resistance levels: 1.4040 1.4085 1.4125

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