- The GBP/USD has formed a bearish shooting star pattern on the daily chart.
- The pair is reacting to the strong manufacturing PMI data from the UK and the upcoming BOE decision.
- In the immediate short term, the pair will react to the upcoming US PMI and the debate on stimulus.
The GBP/USD pair is down by more than 0.45% even after Markit released strong manufacturing data from the UK. The decline makes the sterling the second-worst performing currency in the dollar index after the Swiss franc, which is down by 0.80%.
UK manufacturing activity robust
While the UK has a vast manufacturing sector, its share of the entire economy is relatively small. The sector employs more than 2.7 million people, accounting for about 11% of the entire economy. The services sector is accountable for more than 67% of the GDP.
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According to Markit, the manufacturing sector was in top gear in July as more manufacturers reopened their plants. The headline PMI rose to 53.3 in July from the previous 53.3. Analysts polled by Reuters were expecting the PMI to rise to 51.1.
The rise in the PMI was mostly because of rising internal demand as the country reopened. This caused many manufacturers to restart and even raise their production. Nonetheless, it was partially offset by a weak demand from abroad. Exports decline for the ninth straight month.
Still, British manufacturers are increasingly optimistic about the future. This is reflected in a rise in confidence, which rose to the highest level since March 2018. In a statement, Duncan Brock, of the Chartered Institute of Procurement and Supply said:
“The makers were on the march again in July as production started to flow more easily and businesses saw new orders rise at the fastest pace since the end of 2018.”
The UK is not the only country seeing robust bounce in manufacturing activity. In China, the PMI rose to 52.8 while in Australia, it rose to 53.5. In Japan and the eurozone, the PMI spiked to 45.2 and 51.8, respectively.
Services PMI and BOE rates decision eyed
The GBP/USD pair will next react to the upcoming services PMI numbers that will come out on Wednesday. This is an important number because the UK is known for its services industry, which accounts to about 70% of the GDP. Like the manufacturing PMI, analysts expect that the services PMI will continue being robust.
On Thursday, the BOE will conclude its monetary policy meeting and release the interest rate decision. Analysts polled by Reuters believe that the bank will leave interest rates unchanged at 0.25%. They also believe that the bank will continue to implement its quantitative easing program.
Meanwhile, in the immediate short term, the GBP/USD pair will react to US manufacturing PMI data that will come out in the next hour. Also, the pair will react to the ongoing debate in Washington about stimulus.
GBP/USD technical outlook
The GBP/USD pair is in the second consecutive day in the red. The price is above the 50-day and 100-day exponential moving averages. Interestingly, the pair has formed a shooting star pattern, as shown above. The RSI has moved from the extremely overbought level of 81 to the current 73. Therefore, the pair is likely to continue falling as bears target the next support at