GBPUSD drops after poor UK PMIs

• GBPUSD sinks after UK PMIs came in below expectations

• Bank of England rate hikes are taking toll on UK economy

• Bloomberg model: GBPUSD likely to trade between 1.2545 – 1.2828 into next week

• Friday's speech by Fed Chair Powell may herald more volatility for GBPUSD

The Pound is the worst-performing G10 currency against the dollar today.

The UK’s preliminary PMIs (purchasing manager index) for August showed contracting conditions across both manufacturing and services in the private sector.

With the respective PMIs registering readings below the 50 threshold that differentiates contraction (PMI below 50) and expansion (PMI above 50) …

It’s clear that the Bank of England’s aggressive rate hikes are taking a toll on the UK economy.

Today’s PMI numbers have also prompted markets to dial down bets for a further 75-basis points in rate hikes out of the Bank of England which had been fully priced in prior to today’s PMI releases.

At the time of writing, markets are only pricing in a 54% chance that the BOE can raise its benchmark rate by a further 75bps between now and Q1 2024.

Such soured sentiment surrounding the UK economy and the BOE's future policy moves has clearly weighed on GBPUSD, forcing cable to unwind some of its recent gains.

GBP still among best G10 performers YTD

Though for proper context, Sterling continues to compete with the Swiss Franc for the title of best-performing G10 currency against the US dollar on a year-to-date basis.

The CHF and GBP can still boast of a 5% climb respectively against the greenback so far in 2023.

From a technical perspective:

GBPUSD bulls have been thwarted by the 21-day simple moving average (SMA) of late. The 38.2% Fibonacci level from this FX pair’s June 2021 – September 2022 plummet is also further exerting resistance.

To the downside, the 1.26200 region has been offering support for GBPUSD (nicknamed “cable”) since end-June, with the 100-day SMA also potentially offering further support nearby.

Bloomberg’s FX model forecasts a 74% chance that GBPUSD will trade within the 1.2545 – 1.2828 range over the next one week.

Astute traders would be aware that this time period also includes Fed Chair Jerome Powell’s highly-anticipated speech at the Jackson Hole symposium this Friday, as well as the UK's August consumer confidence data.

Of those two events, Chair Powell’s comments harbours the much greater potential to sway the US dollar, and by extension, GBPUSD as well as the rest of the FX world before the weekend.