Following the publication of a significant improvement in the UK PMI for September, there was a significant slight increase in the value of the Pound sterling against the Euro and Dollar, signalling that the economy’s performance was not as bad as expected.
The S&P Global Services PMI for September was revised up to 49.3 from an initial estimate of 47.2, indicating that the economy avoided a significant downturn and remained stable from August’s 49.5 reading.
The Composite PMI, which adjusts the services, construction and manufacturing PMIs to provide a more accurate picture of the broader economy, was revised higher to 48.5 from 46.8 in the first estimate. The data therefore suggests a mild contraction in the UK economy given that the figure is still below 50. However, the improvement is noteworthy, as given that the MPC had seen the report earlier, it is believed that the deeper decline reflected in the previous estimate was a major factor in the BOE’s decision to keep interest rates on hold in September.
The rapid deceleration indicated by the release of this preliminary estimate was due to an extension of the Pound’s previous multi-week decline. Therefore, today’s upward surprise can be considered to be in favour of the currency.
Meanwhile in the FX market, the GBPAUD pair gave back some of its September decline following the release of the data. From a technical standpoint, the September decline has formed a monthly bearish engulfing pattern which could be a sign of reversal for the upcoming move. The cross pair has rallied over +8% so far this year recording a 3-year high of 1.9970 in August. The best performance was still seen in Q1-Q2 2023, while in Q3 the pair weakened by over -0.5% to close September at 1.8927.
The price is currently trading above the 1.9100 mark, forming a minor corrective wave from the falling 1.9970 peak, and is also seen below the 50-day exponential moving average. On the upside, a bounce off 1.8857 could test the 50% retracement level of 1.9413, while on the downside, a move below 1.8850 support and the 200-day EMA could confirm the start of a short-term downtrend to test 1.8500. Broadly speaking, the current trend is still inside the bullish channel.
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Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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