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  • US Dollar remains under pressure after weaker-than-expected US data.  
  • Pound gains momentum following a report from Bloomberg on a time-limit option to the Irish border.  

The GBP/USD pair gained more than a hundred pips from day’s low over the last hours and not only erased losses, but printed a fresh high at 1.2337. As of writing, it is trading at 1.2315, posting the first daily gain after losing ground during the previous four days.  

The chart shows a dramatic reversal from levels near 1.2200 that could signal a short-term bottom has been established. Cable needs to recover the crucial 1.2350 resistance zone and the 20-day moving average at 1.2370, to offer a signal that the bearish pressure eased.

Still from a fundamental perspective, Brexit uncertainty will likely continue to limit the upside. Today the reversal started after the US ISM manufacturing report showed a decline from 49.1 to 47.8 in September below the 50.1 expected. The report triggered a rally in US bonds and a drop of the Greenback, offering GBP/USD a boost.  

The negative data surprise came after many reports pointed in the opposite direction.  Analysts at Wells Fargo explained that it is worth remembering that manufacturing accounts for only 12% of output and 8.5% of employment. “More important in our view will be Thursday’s reading for the ISM non-manufacturing report. The ISM non-manufacturing survey held up surprisingly well in August, and while we think it is due for some slippage in September, it remains comfortably in expansion territory. Therefore, the pullback in the manufacturing sector still looks to be consistent with a slowdown in the broader economy, but not a recession at this point.”  

Before the non-manufacturing data, on Wednesday the ADP private payroll is due ahead of Friday’s official employment report.  

Report on a time limit to Irish border adds fuel to GBP  

Earlier today, UK PM Boris Johnson said they were prepared to be flexible to solve the Irish border problem. More recently, Bloomberg reported that the European Union was mulling an option for a time limit on the Irish backstop in order to reach a deal. Afterward, the Pound rose across the board.  

As GBP/USD climbed back above 1.2300 into positive territory, EUR/GBP erased gains and dropped from 0.8930, back below 0.8900. The positive tone around the Pound remains in place.