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GBP/USD – Heading to 1.3000?
After nothing but rallies in August and early September, cable has started to drift lower as UK economy appears to be on the verge of contraction. Today. UK Construction PMI printed at 48.1 versus 51.1 eyed as it plunged below the 50 boom/bust line for the first time since September of last year.
With 2 out of 3 UK PMI gauges missing their mark this week, the focus will turn to tomorrow’s UK PMI Services report which is the most important of them all. With services comprising nearly 80% of UK economic activity the market will watch for any large deviation from expectation. The forecast for Services PMI is 53.3 and any sharp decline towards 50 is sure to stoke worries that UK economy may be on the verge of tipping into a contraction.
The slowdown in growth comes at a particularly difficult time for BOE which is grappling with higher than target inflation and the uncertainty of Brexit. If UK economy does begin to show serious signs of a slowdown, the BOE will be hard pressed to raise the rate in such an environment putting further downside pressure on cable.
For now, the upside is capped by the 1.3450 level while on the downside 1.3200 looks vulnerable. If that level goes the shorts will move their target towards the key 1.3000 support.