GBPUSD makes an unexpected re-entry to 1.51

After a complete lack of investor attraction following a combination of different factors allowed the sterling bears to squeeze the GBPUSD all the way down from 1.55 late last week to looking on the edge of entering 1.49 on Thursday afternoon, the GBPUSD just made an unexpected re-entry to 1.51 after sterling bulls received a boost from stronger-than expected Manufacturing Output in November. Manufacturing Output activity increased by an annualised 2.7% but when the most recent Manufacturing PMI was announced at a three-month low, the prospects for activity in this sector moving forward will come under question.

Those hoping the GBPUSD will reverse losses anytime soon should also pay close attention to UK economic data, especially considering the latest UK inflation figures are announced next week. The Bank of England’s (BoE) dovish views on inflation are no secret, and they are likely to become even stronger before they potentially weaken slightly. This would also further push back UK interest rate optimism, and weaken investor attraction even further. It is important to also pay attention to UK General Election momentum, because after the completely unexpected volatility with the Scottish referendum in September, investors are far more likely to wait for this to settle down before considering sterling positions.

Other UK economic releases, such as Construction and Industrial also pointed towards even further indication of domestic momentum slowing. This shortly follows Services, Manufacturing and Construction PMIs showing a slowdown in activity and will further push back any pressure on the BoE to raise interest rates. The market reaction to this afternoon’s NFP release will also have a large indication on where the GBPUSD concludes the week, where USD weakness remains seen as the only factor that can shift this pair’s potential to the upside. Other than that, the drop in oil prices is easing household budgets and with UK employment prospects still looking strong, it is worth keeping an eye out for UK retail sales releases. It is no coincidence that even an unemployment-stricken Eurozone received an unexpected surprise to the upside with retail sales released yesterday.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

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