Market Analysis

Investor focus turns back towards United Kingdom economy

The United Kingdom is back under investor scrutiny this week, following a chaotic few weeks where Boris Johnson and Brexit have captured financial markets attention. The UK economy is set to release PMI manufacturing and PMI service sector data for the month of August, which is expected to provide more evidence that the economy is slowing.

The key data releases come at a sensitive for the UK economy, after the United Kingdom posted its first quarter of economic contraction since 2012. Should we continue to see more weaker-than-expected UK data, it then brings forward the possibility that the United Kingdom economy is headed towards a technical recession.

More troubling for the UK economy, is that traditionally the summer provides some of the best months of economic activity, due to heightened spending on UK services and a boost in construction and tourism. Recent data has shown that the UK construction sector remains trapped in a downward spiral, while UK tourism falling.

Wednesday’s UK service sector data is expected to be slightly weaker than the previous months reading and remaining at its weakest level since 2016. The silver lining for the Bank of England has been the robust UK jobs market and on-target inflation, which has effectively held-back calls for a rate cut from the central bank.

Speculators driving the British pound lower have enjoyed an almost one-way trade over the summer, due to Brexit and domestic politics. It appears that the bearish trend is set to continue as UK data points soften and investors seek other currencies, such as the Japanese yen and the Swiss franc, which are considered safe-havens.


GBP/USD Daily Candlestick Chart Source-ActivTrader Platform

GBP/USD Daily Candlestick Chart | Source: ActivTrader


Brexit news is likely to be a key driver for sterling this week, as Brexiteers and Remainers continue to squabble over the recent suspension of UK parliament. The GBP/USD pair currently has support at the 1.2100 and 1.1980 levels, while any moves above the 1.2310 level should find strong resistance from the 1.2380 and 1.2400 levels.


Written by Nathan Batchelor, External Analyst, ActivTrades

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