The price of the GBP/USD currency pair resumed its rapid decline from the resistance level of 1.2600 to the support level of 1.2471, after the release of the PMI data. This indicated the UK economy was on the brink of contraction in May and conditions were deteriorating faster than they were during the outbreak. GBP/USD is stable around the 1.2530 level at the time of writing.
The S&P Global PMI release for May showed that the UK services sector barely rose with a PMI of 51.8, down from 58.9 previously and well below the 57 forecast by analysts. Such a steep month-over-month decline is almost unprecedented: May’s loss of monthly momentum was the fourth largest on record and surpassed anything seen before the pandemic.
The manufacturing sector held up slightly better, but with the manufacturing PMI at 54.6, down from 55.8 in April and less than the expected reading of 55. The composite PMI for May – which gives a broader look at the economy – came in at 51.8, lower than expected 56.5 and 58.2 the previous month.
The data and the pound’s reaction underscore why JPMorgan described the UK as the “beacon child” of stagflation when it lowered its forecast for the pound earlier this month. The data also contrasts unfavorably with figures from Europe where Eurozone PMI data showed continued strong growth in May.
For its part, the global agency Standard & Poor’s reported that private sector companies in the UK indicated a marked slowdown in business growth during the month of May, as mounting inflationary pressures and geopolitical uncertainty growth have limited customer demand. Indeed, the data shows the fastest rise in operating expenses. Since the launch of this indicator in January 1998. In addition, concerns about shrinking margins and low order books have significantly lowered companies’ expectations for the year ahead.
S&P Global also reported that weak trade momentum in Britain weighed on activity, with manufacturers reporting the biggest drop in export orders since June 2020.. A number of commodity producers have cited Brexit-related trade frictions as the main contributing factor. Export sales fell in May, particularly due to new customs rules, additional documentation requirements and other complications with EU trade, according to Standard & Poor’s Global.
However, the data showed a sharp increase in jobs as companies continue to catch up on unfinished work, reports S&P Global, although the rate of job creation fell slightly from April and was the least noticeable since. 13 months.
The results should continue to support expectations that wages will remain high going forward. Inflationary pressures remain a concern as average costs rose rapidly in May, with input price inflation at private sector businesses hitting a new high in the survey.
This development is explained by the acceleration of rising cost pressures in the services economy, with this indicator reaching its highest level since the start of the survey in July 1996.
According to the technical analysis of the pair: The performance of the GBP/USD currency pair is in a neutral position with a bearish bias. Bearish control will strengthen if the currency pair retraces to the support levels 1.2465 and 1.2300, respectively. With the latest level, psychological support expectations will once again return to 1.2000. On the other hand, the bulls will collide in the event of a return to the orders with the resistance levels 1.2635 and 1.2775. Continued pessimism from the Bank of England and UK print results will continue to support sterling selling across the board.