GBP/USD wavers as UK construction PMI zoom past analysts forecasts

Written by: Crispus Nyaga
July 6, 2020
  • The GBP/USD pair was little changed as traders reacted to UK car sales and construction PMI.
  • The construction PMI rose to 55.3 from the previous 28.9.
  • Car registrations in the UK rose to 145,000 in June but are still down by 50% YTD.

The GBP/USD pair is little changed today as traders digest the latest auto sales data and construction PMI from the UK. The pair is trading at 1.2490, which is slightly higher than Friday’s low of 1.2443. It is slightly below the 100-day exponential moving average.

GBP/USD reacts to construction PMI

UK construction PMI jumps

Construction activity in the UK jumped in June as the government relaxed some stay-at-home orders, according to Markit. The construction PMI in the country rose to 55.3 in June, which was higher than the previous 28.9. It was also the highest it has been in nearly two years. Analysts polled by Reuters were expecting the number to come in at 47.0.

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The best-performing sector within the index was residential building followed by commercial work and civil engineering activity. 46% of respondents said that business activity in the residential sector was higher while only 27% noted a decline.

In the same month, new business volumes rose while employment numbers declined. At the same time, expectations for the year ahead remained subdued while supply chains disruption continued. Duncan Brock, an analyst at CIPS said:

“Builders were the stars of the UK economy in June with the fastest rise in purchasing activity in almost five years, as pent-up building plans were unleashed following the easing of lockdown measures. Housing led the way with the other main sectors closely behind as several larger infrastructure projects were also on the move.”

Last week, data from Markit showed that services and manufacturing PMIsalso rebounded in June.

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UK auto sales rebound

The GBP/USD is also reacting to better auto sales numbers from the United Kingdom. According to the Society of Motor Manufacturers and Traders, auto registrations rose by 145,000 in June. That number was slightly better than the sales made in May. Year to date, sales have dropped by more than 50% because of the lockdown measures implemented by the government. This is the weakest decline in the sector since 1971.

Sales in other European countries like Germany and France have rebounded. Still, the challenge for the UK auto sector is that the government has not offered a rescue package for the industry. In the United States, the government has indirectly offered incentives for the sector. The same is true for Germany and France. As a result, analysts have warned that one in every six jobs in the UK will disappear.

The report showed that Tesla Model 3 was the best-selling car in the UK in April and May. But the sales dropped to number nine in June. Year-to-date, the best sellers have been Ford Fiesta, Ford Focus, Volkswagen Gold, and Vauxhall Corsa. In a statement, Mike Hawes of SMMT said:

“While it’s welcome to see demand rise above the rock-bottom levels we saw during lockdown, this is not a recovery and barely a restart. Many of June’s registrations could be attributed to customers finally being able to collect their pre-pandemic orders.”

GBP/USD technical outlook

GBP/USD technical forecast

The GBP/USD pair is trading at 1.2478. On the daily chart, this price is between the 50-day and 100-day exponential moving averages. It is also along the 61.8% Fibonacci retracement level. Also, it seems to be forming a bullish pennant pattern. This means that the price is likely to continue rising as bulls attempt to move above 1.2600.