GBP/USD outlook ahead of US election and BOE interest rate decision
- The GBP/USD is wavering today as traders react to the UK PMI numbers and new shutdown.
- UK manufacturing PMI came in at 53.7 but there are concerns about potential slowdown due to lockdown.
- The GBP/USD is also waiting for the US election and interest rates by Fed and Bank of England.
The GBP/USD price is little changed as traders react to the new lockdown in the UK, upcoming election in the US, and the upbeat manufacturing PMI data from the UK. The pair is trading at 1.2938, which is substantially higher than the intraday low of 1.2854.
UK manufacturing sector rebounds
The important manufacturing sector in the UK continued to rebound in October as it did in other European countries. According to Markit, the closely-watched manufacturing PMI rose to 53.7 in October, from 53.3 in the previous month. This increase was better than the 53.3 that analysts polled by Reuters were expecting.
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According to Markit, this improvement was due to intakes of new work and manufacturers catching up with existing orders that were delayed during the first lockdown. This demand was mostly from China and the United States.
The rise of the PMI was also because of the optimism among manufacturers. Indeed, more than 60% of the surveyed companies expect their output to rise in the 2020.
However, firms in the sector are still slashing their workforce. These cuts were more pronounced in the consumer goods industry. In a statement, Chris Williamson of Markit said:
“October saw the UK manufacturing recovery continue, albeit with the upturn losing momentum amid ongoing lockdown measures and signs that growth could weaken further in coming months after Brexit-related stockpiling.”
Manufacturing activity robust in other European countries
The UK was not the only country to record an improvement in manufacturing activity. Earlier today, data from China showed that the manufacturing PMI jumped to 53.6. In the Eurozone, the PMI rose to 54.8 as most countries like Germany, France, Italy, and Spain did well.
However, the biggest risk is that the UK and other European countries have started seeing an uptick in the number of Covid-19 cases. Indeed, in the UK, the government has already announced a month-long shutdown, which risks undoing the progress in the sector.
Perhaps, the GBP/USD has held steady because of the rising hopes of a Brexit deal. As I wrote last week, sources have told media sources that they are optimistic about a deal. Indeed, some sources told Bloomberg that the two sides had even started drafting the divorce documents.
The pair is also waiting for the outcome of the US election, interest rates from the Fed and Bank of England and the Federal Reserve and the nonfarm payroll numbers from the US.
GBP/USD technical outlook
On the daily chart, we see that the GBP/USD pair is above the green ascending channel that connects the lowest levels in May, July, and September. The price is between the 61.8% and 78.2% Fibonacci retracement levels and is along the 15-day and 25-day exponential moving averages. Also, it appears to have formed a bearish flag pattern that is shown in red. Therefore, in the immediate near term, I expect that the pair will break out lower as bears aim for the next support at 1.2657.