GBPUSD Rises on Mixed Manufacturing PMI As the Dollar Weakens

Azeez Mustapha
23 August 2021 | Updated: 23 August 2021

GBPUSD: UK Flash PMI reports for August were mixed. The manufacturing PMI fell slightly to 60.1 (July: 60.4). Despite a 5-month low, this reading indicates strong expansion, as it is well above the neutral level of 50. Consumer demand remains strong, but producers are unable to keep up due to a lack of raw materials.

The news was not as good as the services sector, which fell to 55.3, a 6-month low (July final: 59.6). The sharp slowdown in growth was a reflection of supply chain problems and staff shortages. As with manufacturing, businesses were unable to keep up with consumer demand, resulting in delays.

However, even with this slowdown, business activity continues to expand. Meanwhile, the CBI survey of manufacturers’ economic expectations, which had been in negative territory for about 24 months, showed that growth has been observed for the fourth month in a row. This is another indicator of a strong manufacturing sector.

Investors have lowered their expectations for the Fed’s tapering plan due to concerns that the continued rise in coronavirus cases of the Delta strain could derail the global economic recovery. Apart from that, a generally upbeat tone in the stock markets was considered as another factor undermining the safe-haven dollar. Meanwhile, for the first time since July, China has recorded no cases of COVID-19 local transmission.

Dollar Weakness Boosts GBPUSD

The GBPUSD pair had a somewhat quiet reaction to mixed UK PMI readings for August, as the USD price dynamics turned out to be the sole driver. In fact, in August, the Manufacturing PMI plummeted to a five-month low of 60.1. Furthermore, the services sector index dropped to six-month lows, or 55.5, during the reported month.

The GBPUSD pair saw some short-covering on the first day of a new trading week after defending the 1.3600 marks on Friday, halting its recent decline to one-month highs. The US dollar extended its retracement decline from its highest level since November 2020 in the previous session, giving the major a slight boost.

During the first part of the European session, the GBPUSD pair continued its steady rebound and soared to new daily highs near 1.3724 as of the American session. The British pound has made a strong start to the new trading week. The GBPUSD currency pair is currently trading at 1.3722, up 0.5 percent on the day.

Conversely, a sharp rise in US Treasury bond yields failed to impress USD bulls or halt the GBPUSD pair’s intraday rally. Market players are now anticipating the flash version of the US Manufacturing and Services PMI data later in the early North American session for some short-term trading possibilities.

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Azeez Mustapha

Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.