GBP Falls As Omicron Hits January PMIs

30702 gbp falls as omicron hits january pmis

UK Data Soft Patch ContinuesGBP traders have been hit by a further round of poor data this week. The latest PMI data sets for January, released yesterday, showed that both the manufacturing and services sector were weaker than expected over the month. The manufacturing PMI was seen falling back to 56.9, from the prior month’s 57.9 reading, falling short of the 57.7 reading the market was looking for. Similarly, the services sector PMI was seen falling back to 53.3 from the prior month’s 53.6 reading, undershooting expectations for a lift to 53.9.Better Outlook For Q1While the readings are no doubt disappointing for GBP bulls, as with the dismal retail sales data we saw last week, there is some argument for looking beyond the readings as just a blip, given how much the landscape has shifted since then. December was a particularly difficult month given the resurgence in COVID fears, as well as soaring omicron infections which dramatically exacerbated supply chain issues due to worker disruptions. Additionally, business orders were hit due to fears of a return to lockdown in Q1. It seems that there has certainly been some knock on effects, still lingering in January. However, with omicron fears having subsided, infections falling rapidly and, most importantly, lockdown avoided (and unlikely to return), the outlook has improved remarkably.Omicron Risks Fading, BOE in FocusIndeed, in the wake of omicron fears washing away, the market is now firmly fixed once again on the prospect of early BOE tightening. Current market pricing is focused on a hike at the upcoming February meeting of at least a further 0.10%, possibly as much as 0.25%. Traders will also be keen to hear the bank’s latest outlook and assess the extent to which the bank has turned more hawkish in the passing of omicron uncertainty. With this in mind, there Is plenty of room for GBP to move firmly higher across February if the BOE delivers with a hike and upgrades its forward guidance.Political Uncertainty The only fly in the ointment for GBP now if the ongoing political uncertainty around Boris Johnson’s leadership. With the PM having been embroiled in numerous scandals over the course of his leadership, and reportedly now inches from facing a vote of no confidence, it seems clear that a leadership change is in the offing. However, for now, at least, it seems that GBP is not too rocked by the prospect of a leadership change. Likely a reflection of how it judges the quality of the current leadership.Technical ViewsGBPUSDThe market remains under pressure following the rejection at the latest test of the bear channel top around the 1.3676 level. With both MACD and RSI having turned lower, the focus is on a continuation lower here and a test of the 1.3461 and 1.3349 support levels. However, given the broader market structure, it will be worth paying attention to that support region as any bound there might prove to be the right shoulder of a large, sloping, inverse head and shoulders pattern. If this is the case, the medium-term outlook would then shift in favour of a bullish reversal across Q1.

Source: Tickmill

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