GBP/USD Forecast Sep. 28-Oct. 2- Pound Falls As US Dollar Flexes Muscles

Bank of England Governor Bailey was forced to do some damage control last week, as he insisted that the BoE was not considering adopting negative interest rates. His denial came after the BoE policy statement stated that MPC members had been briefed on the possibility of negative rates. The pound briefly lost ground after that announcement, and Bailey was forced to beat a hasty retreat. (FXB)

Manufacturing and services PMIs remained in expansion territory, with readings above the 50-level. However, the August numbers showed a slowdown. The Manufacturing PMI dropped from 55.3 to 54.3, while the Services PMI slowed to 55.1, down from 60.1 beforehand. The UK’s budget deficit ballooned to GBP 35.2 billion in August, up from GBP 25.9 billion. Still, this was smaller than the forecast of GBP 40.6 billion.

In the US, Federal Reserve Chair Powell had a busy week testifying on Capitol Hill. Powell reiterated that the Fed was using all available tools to support the budding economic recovery. He also called on Congress to provide additional fiscal stimulus.

The US Flash Manufacturing PMI for September came in at 53.5, almost unchanged from 53.4 a month earlier. Importantly, the reading beat the estimate of 52.5 points. The index has been in expansion territory for four straight months, with readings above the 50-level, which separates expansion from contraction. On the services front, Flash Services PMI came in at 54.6, just shy of the previous release of 54.8 points. The respectable reading points to a solid rise in business activity, another sign that the economic recovery is strengthening.

GBP/USD daily graph with resistance and support lines on it. 

  1. Net Lending to Individuals: Tuesday, 8:30. Credit levels rose to GBP 3.9 billion in July, up sharply from GBP1.8 billion. This points to stronger consumer spending and confidence. The upswing is expected to continue, with an estimate of GBP 5.2 billion.
  2. BRC Shop Price Index: Tuesday, 23:01. This indication gauge continues to lose ground, indicative of weak inflation levels. The indicator declined by 1.6% in August and the September forecast stands at -1.4 percent.
  3. Final GDP: Wednesday, 6:00. The second quarter was a disaster, as COVID-19 shut down much of the economy. The final GDP reading is projected to confirm the initial reading of -20.4%. As this reading has been priced in, the release is unlikely to have much impact on the pound.
  4. Manufacturing PMI: Thursday, 8:30. The index remains above the 50-level, which separates contraction from expansion. The initial reading for August came in at 54.3 and the upcoming release is expected to confirm this figure.
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