Indicators Are Heading Towards O

The Federal Reserve’s 525 basis points interest rate hike makes itself felt.

• The GBP/USD exchange rate has extended previous losses towards historic levels on the charts after an influential survey indicated that business conditions for manufacturers in the world’s largest economy improved slightly last month when producers of fossil fuels and furniture were among the only firms to trade.
• The losses of the Sterling against the dollar, GBP/USD, reached the support level at 1.2741, its lowest in nearly a month, and settled around the level of 1.2790 at the time of writing.

According to the announcement yesterday, growth was limited to the oil-producing industries, coal and furniture in July, according to the Institute for Supply Management (ISM) Manufacturing PMI survey, with all other major industries contracting. It beat economists’ expectations when it rose from 46 to 46.4, leaving it below the consensus of 46.8.

However, inventories of materials and products fell in some parts, even as business conditions were moribund in what was described as a “neutral to slightly positive” result creating space where new orders, production, and economies could grow. Material and product prices also fell as the economic conditions softened which the US Federal Reserve is likely to welcome although the moderation in price pressures was less than economists had expected.

Darkened business conditions, enhanced competition among US firms and softer rate increases were all positive results for rate-setters who are looking to see the 3% inflation rate ease to a 2% target over the coming months, but do nothing to halt the pound’s previous slide against the dollar.

Overall, the GBP/USD extended losses amid broad-based declines in equity and bond markets as economists looked forward to Thursday’s ISM survey covering the largest and most important US services sector, which is a precursor to Friday’s US non-farm payroll numbers. All of this will help shape market views further on the Fed’s interest rate outlook just over a week after it hiked the US interest rate to 5.5%, but said any further increase would have to be justified by economic data released before that next meeting in June.

Many took these comments as meaning the cycle was indeed over, sending stock and bond markets higher in the new week, although some investors say this reaction took less account of the extent of the economy’s deterioration than the full impact of the surge. The Federal Reserve’s 525 basis points interest rate hike makes itself felt.

According to the performance on the daily chart below, the shift for the GBP/USD currency pair is still bearish, and there will be no chance for the bulls to control the direction without returning above the psychological resistance of 1.3000 again.

If the dollar gets a new strong momentum from the US job numbers this week, and the Bank of England abandons the path of tightening its policy, the bears may find the opportunity to move towards deeper support levels, the closest to which they are currently 1.2725 and 1.2600, respectively. These levels are sufficient to push the technical indicators toward strong oversold levels. The dollar will be affected today by the announcement of the ADP reading of the change in the number of US non-farm payrolls.

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