Thu, Dec 01, 2022

The UK Economy Drops Following Release Of PMI Data And BOE Speeches
5 mins well spent

GBPUSD is moving in the Descending triangle pattern and Market has rebounded from the Horizontal support area of the pattern.

Where Is GBPUSD Today

The GBPUSD currency pair is struggling to stay above support levels following the release of the UK’s PMI data. Looking at each of the time frames, it is evident that this major pair is currently entering being super unstable as a result of the unexpected reveal that the PMI data were much lower than expected.

GBPUSD Daily Time Frame Analysis Market is moving in the Descending channel and the Market has rebounded from the Lower low area of the channel 1

GBPUSD is moving in the Descending channel and Market has rebounded from the Lower low area of the channel.

This caused the pair to be slightly bearish as well. We can see that every now and then, the pair seems to recover slightly before falling back under hot waters. Just today, we have seen the GBPUSD pair fall as low as 1.247 but has since slightly recovered and is now teasing around the 1.250 region. At the moment, it seems as though this pair may continue to try and trend upwards. However, it is very unlikely that this will actually occur.

The UK PMI Data

Early on Tuesday we found out that the UK released their PMI data which shows the UK economy is struggling way worse than we thought. The Composite PMI index was found to be 51.8. This is significantly lower than the expected 56.5 and the previous 58.2. The Manufacturing PMI index was found to be 54.6. This is also significantly lower than the expected 54.9 and the previous 55.8. Similarly, the Services PMI was found to be 51.8. This is also significantly lower than the expected 56.9 and the previous 58.9. As shown from the forecasted results from each of these data points, it is clear that a lower than previous data was expected. However, what wasn’t expected was how low it was actually going to be. The results were much lower than expected which signifies that the UK’s economy is coming to a halt and we may be witnessing the early signs of a recession.

GBPUSD H1 Time Frame Analysis Market is moving in an Ascending channel and the Market has Rebounded from the higher low area of the channel

GBPUSD is moving in an Ascending channel and Market has Rebounded from the higher low area of the channel.

Chris Williamson, Chief Economist at S&P Global reveals, “The UK PMI survey data signal a severe slowing in the rate of economic growth in May, with forward-looking indicators hinting that worse is to come. Meanwhile, the inflation picture has worsened as the rate of increase of companies’ costs hit yet another all-time high. The survey data therefore point to the economy almost grinding to a halt as inflationary pressure rises to unprecedented levels. The tailwind from the reopening of the economy has faded, having been overcome by headwinds of soaring prices, supply delays, labor shortages and increasingly gloomy prospects. Companies cite increasingly cautious moods among households and business customers, linked to the cost-of-living crisis, Brexit, rising interest rates, China’s lockdowns and the war in Ukraine.”

BOE Bailey Speech

BOE’s Andrew Bailey attended an annual economic conference at the Oesterreichische National Bank early on Monday where he talked about the monetary policy along with other members of the panel. He reveals, “This is a time of very large economic shocks, and particularly very large external shocks, most recently from Russia’s invasion of Ukraine. I say that as someone who wholeheartedly supports the cause of Ukraine and the assistance we must give. We are in a period of rapidly rising energy, goods and some food prices. These are the most visible prices too. This is by far the main cause of high inflation, and is painful, particularly for those less well off. With shocks such as pandemics and wars, the answer to the first question is more likely to be no. But the answer to the second is very much yes, monetary policymakers can and must take the actions needed to return inflation to target over a period that avoids unnecessary volatility in the economy.”

Bank of England credit release happening today it came in weaker data then GBP will be affected.

He continues on to add, “What I reject is the argument that in our response to Covid the Bank’s Monetary Policy Committee let demand get out of hand and thus stoked inflation. The facts simply do not support this. On the latest number, UK GDP in March was only 0.6% above its pre-Covid level, and it is substantially below the path it was expected to follow pre-Covid. What we do have is a very tight labor market. But that does not look like a story about rapid demand growth. The labor force has shrunk by around 1% since the onset of Covid. It looks much more like an impact from the supply of labor. The job of the Bank of England is to return inflation to target at a time when a very large headwind from external shocks, and an internal shock from a fall in the labor force, are reducing real incomes but risk leading to persistence in domestic wage and price setting, so-called second round effects.”

BOE Woods Speech

BOE’s Deputy Governor Sam Woods held a speech at the Global Association of Risk Professionals early on Tuesday where he talked about Climate capital. He states, “Tackling the threat from climate change will involve efforts by governments across the globe, as well as by many other organizations and individuals. In the UK, the effort to get to Net Zero greenhouse gas emissions is being led by government, with a wide range of other public bodies doing their part. The role of prudential policy is to ensure the safety and soundness of banks and insurers, so that they can continue to provide vital financial services to the real economy. Getting our core job right, and so maintaining financial stability, is far and away the most important thing we can do to support the fight against climate change. A stable financial system can support households and businesses through these changes, and channel investment where it needs to go to support the transition.”

He further adds, “Most fundamentally, the CBES results are a snapshot – based on current data and modelling capabilities, and focused on a specific set of scenarios and risks. I have highlighted the significant uncertainty as well as the gaps that underlie these results. To my mind the most notable exclusion is traded or market risk for banks, which might be where a transition shock would be most likely to manifest – indeed current and recent stresses in energy and commodity markets illustrate this point. As we build capabilities, we will be better able to size the risk and its potential policy implications.”


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