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Stronger than expected manufacturing PMI helped lift the pound’s spirits last week, but can the rest of the PMI readings follow suit?

U.K. services PMI (June 5, 8:30 am GMT)

Although the construction PMI is also up for release this week, the one from the services industry tends to hog the spotlight as this sector accounts for a much larger chunk of overall economic activity.

Analysts expect to see an uptick from 52.8 to 52.9 for May, which would reflect a slightly faster pace of expansion. But if the manufacturing PMI is any indication, there could be room for an upside surprise as well.

Keep in mind, however, that a handful of underlying components such as employment and selling price inflation failed to impress.

Last Week’s Price Review

The pound outpaced the euro and is now in second place while the euro got knocked down to third place (as of 2 pm GMT).

Overlay of GBP Pairs: 1-Hour Forex Chart
Overlay of GBP Pairs: 1-Hour Forex Chart

Looking at the overlay of GBP pairs, we can see that GBP pairs had rather messy price action. There are even instances of clearly diverging price action, which heavily implies that the pound was vulnerable to its peers.

In fact, the only time the pound showed clearly uniform price action is on Friday when the pound rose across the board. Although the pound also showed somewhat uniform price action when it started to trade broadly higher during Wednesday’s late U.S. session until Thursday’s Asian session.

There were no direct catalysts at the time, but as noted in Thursday’s Asian session recap, market analysts were attributing the pound’s rise on preemptive positioning ahead of the U.K.’s manufacturing PMI report on Friday.

As for the pound’s broad-based rise on Friday, there’s also no direct catalyst for that. Market analysts were mostly attributing the pound’s rise to the U.K.’s better-than-expected manufacturing PMI reading (54.4 vs. 53.5 expected, 53.9 previous). But as marked on the chart above and as noted in Friday’s London session recap, the pound began climbing a few hours before the PMI report was released.

It’s not clear why, but preemptive positioning ahead of the PMI report is a possible reason. If you’re more cynical, then a leak is also another possible reason. However, it’s also possible that we’re just seeing some start-of-month positioning and/or portfolio rebalancing by hedge funds and other large players.

At any rate, the pound’s rise on Friday pushed most GBP pairs above last week’s closing prices (dashed horizontal line). And that’s why the pound is currently a net winner for the week.