Pound Pounded on Growth Doubts

GBP/USD lost a key level and pound crosses are dropping on a relatively weak Construction PMI. This second tier figure didn’t make a terrible drop, but the currency did. How come? Some answers.

Purchasing managers’ index for October disappointed – it scored 51.6 points instead of 53.1 that was expected. The gap of 1.5 points is significant,but not  disastrous. It’s also important to note that it scored more than 50 points – the level that divides between economic expansion and contraction. So why is so bad?

The answer lies within the growth components. In the first release of GDP, the growth was boosted by the construction sector. Government  stimulus  was the main driver of this sector and apparently of the economy as well. The new British government has spending cuts on the top of its agenda.

So, without help, the sector is quite slow. This impacts the whole economy, and endangers growth in Q4. So, these worries hurt the pound.

GBP/USD dropped under 1.60, a level it had a hard time to conquer was lost again. Levels below are 1.5923, 1.5850 and 1.5750. A recovery, on a possible huge QE program from the US, can send the pair above 1.60 and towards 1.6080, 1.6270 and 1.6450.

More levels can be seen in the last pound outlook.  EUR/GBP is on the rise, and GBP/USD and GBP/CHF are falling.

This figure complicates the situation for policymakers coming to make their rate decision on Thursday. This figure boosts Adam Posen who wants a new QE (pound printing) in Britain, and weakens Andrew Sentance, that focuses on growth and rising inflation, and wants a rate hike.

One thing is certain – the pound supplies lots of volatility.

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