UK Services Show Resilience, US Dollar Strengthens Amid Global Tensions

In September, British services companies experienced a milder downturn than initially anticipated, according to the final reading of the S&P Global UK Services Purchasing Managers' Index (PMI). The index fell to 49.3 from August's 49.5, marking an eight-month low but surpassing the preliminary reading of 47.2.

This unexpected resilience was attributed to a surprise decrease in inflation and the Bank of England's decision to maintain interest rates. The composite PMI, combining services and manufacturing, decreased slightly to 48.5 from 48.6 in August, revised up from the flash reading of 46.8.

In contrast, the UK construction industry saw a substantial decline in activity, with the S&P Global/CIPS UK construction PMI dropping to 45.0 in September, the lowest since May 2020. This slump, attributed to higher interest rates, particularly impacted house-building. The all-sector PMI, encompassing services, manufacturing, and construction, declined to 48.2, its lowest since January 2021. Nationwide reported a joint-fastest decline in house prices since 2009, although mortgage rates slightly eased after the Bank of England's decision to maintain rates in September.

Amid global tensions, the safe-haven dollar gained traction, rising 0.11% in response to Middle East violence and a robust U.S. jobs report. The report indicated the largest increase in U.S. employment in eight months in September, potentially setting the stage for higher inflation. Risk sentiment wavered due to clashes between Israeli forces and Hamas, contributing to a fragile market. Market pricing suggested an 82% probability of the Federal Reserve keeping rates steady at its November meeting.

The U.S. is set to release key consumer and producer price index data for September after August's CPI report revealed the fastest increase in 14 months, driven by a surge in gasoline costs, while core inflation, excluding food and fuel, rose at the slowest pace in nearly two years.

Friday's employment data indicated a significant surge in nonfarm payrolls, suggesting persistent labor market strength. Despite slowing wage growth, the report, coupled with job openings and low unemployment benefit applications, implies that the Fed may uphold tight monetary policy for an extended duration.

Financial markets and many economists anticipate the Fed staying put on rate hikes, given the surge in long-term U.S. Treasury yields to 16-year highs. The possibility of hotter inflation figures may bolster the Fed's stance on the need for prolonged higher interest rates. While the Fed is expected to maintain rates during its October 31-November 1 meeting, some traders are speculating on another increase. Consequently, there is a likelihood that the pound and US dollar currency pair will exhibit a tendency to stabilize and fluctuate within a certain range. This is due to the similarity in returns, with the US dollar maintaining a slightly to moderately stronger trend than the pound. This trend persists because market sentiment remains uncertain, primarily influenced by the ongoing conflicts in the Middle East.

Data for Technical Analysis (1H) CFD GBP/USD

Resistance : 1.2222, 1.2226, 1.2232

Support : 1.2210, 1.2206, 1.2200                  

1H Outlook 

Source: Investing.com

Buy/Long 1 If the support at the price range 1.2200 - 1.2210 is touched, but the support at 1.2210 cannot be broken, the TP may be set around 1.2224 and the SL around 1.2195, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.2222 - 1.2232, TP may be set around 1.2240 and SL around 1.2205, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.2222 - 1.2232 is touched, but the resistance  1.2222 cannot be broken, the TP may be set around 1.2208 and the SL around 1.2237, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.2200 - 1.2210, TP may be set around 1.2192 and SL around 1.2227, or up to the risk appetite.       

Pivot Points Oct 09, 2023 02:20AM GMT

Sources: Investing 1, Investing 2