GBP/USD is heading towards 1.2700 after falling to a one-month low. | 02 August 2024

Event to pay attention to today:

15:30 GMT+3. USD - Non-Farm Employment Change

GBPUSD:

The GBP/USD exchange rate fell to a new low on Thursday, dropping towards the 1.2700 level as concerns about a potential recession mounted. This followed the release of US Purchasing Managers Index (PMI) figures that were below expectations, and which coincided with a slowdown in the flow of Pound Sterling. The Bank of England (BoE) had already widely anticipated a quarter-point rate cut, but the figures nonetheless prompted a further decline in the GBP/USD exchange rate.

Friday's US Non-Farm Payrolls (NFP) data will be of great importance this week, as the Federal Reserve (Fed) has outlined the necessary path of economic data for a widely anticipated rate cut in September. Investors will be hoping for a continued, but not excessive, decline in new jobs in July. Analysts anticipate that the US NFP will decline to 175,000 new jobs for the month, a decrease from the 206,000 recorded in the previous month.

The number of initial jobless claims in the US for the week ending 26 July increased to 249,000 from 235,000 in the previous week, exceeding the forecasted increase to 236,000. The ISM US Manufacturing PMI for July fell to an eight-month low of 46.8, down from the previous reading of 48.5. This result completely exceeded the forecast for an increase to 48.8.

The ISM Manufacturing Goods and Services Price Index increased to 52.9 in July, up from 52.1 in the previous month. However, this was below the projected decline to 48.8, indicating that producer prices continue to rise at a faster rate than anticipated, even as activity levels decline.

The current economic slowdown is leading to a challenging equilibrium in the market, with expectations of a potential Federal Reserve rate cut. CME's FedWatch tool indicates that the probability of a rate cut on 18 September is at least a quarter of a point, with a 50 basis point rate cut also a possibility at one in five. However, should the downturn become too severe, it could have a negative impact on market sentiment, potentially rendering any Fed rate cut irrelevant. This places investors in a challenging position, as they are hoping for a rate cut based on soft data, but are keen to avoid a scenario where the US economy faces a hard landing.

Trading recommendation: We follow the level of 1.2700, if we consolidate above it, we take Buy positions, if it bounces back, we take Sell positions.

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