Pound Will Face Greater Depreciation Pressure

Forex

Summary:

While the rebound in the services PMI provides short-term support for the British pound, the weakness in manufacturing, coupled with the stagflationary risks of a "wage-price" spiral, suggests that the pound may face significant downward pressure.

SELL GBPUSD

Close Time

CLOSED

1.29316

Entry Price

1.25200

1.30500

1.35092 +0.00484 +0.36%

118.4

Pips

Loss

1.25200

1.30502

Exit Price

1.29316

Entry Price

1.30500

Fundamentals

Today's release of the UK's March PMI data presents a mixed picture of results.

Specifically, the preliminary March Manufacturing PMI registered at 44.6, marking a sixth consecutive month of contraction and the lowest level since Q4 2023. The output index plunged into contraction territory for the first time since October 2023, while new orders plummeted due to declining exports, particularly to the EU. Concurrently, output price inflation surged to its highest level since April 2023, driven by escalating labor costs, including increases in National Insurance contributions and minimum wage adjustments.

Furthermore, the manufacturing confidence index declined to its lowest point since November 2022, pressured by rising raw material costs that are squeezing profit margins. This situation exacerbates the pressure to reduce inventories, creating a negative feedback loop with weakening demand.

It's noteworthy that while the preliminary March Services PMI reached a seven-month high of 53.2, the growth is concentrated in seasonal consumption sectors such as tourism and entertainment. Corporate surveys indicate that the growth rate of new orders has slowed for three consecutive months. The current expansion in the service sector relies on the residual impact of post-Olympics infrastructure investment. Fiscal tightening (a GBP5 billion cut in welfare) and high mortgage rates (averaging 5.8%) may suppress consumer momentum over the next three months.

Overall, although the rebound in the Services PMI provides short-term support for the British pound, the collapse in manufacturing (a PMI of 44.6, nearing the recession threshold) and the stagflation risk of a "wage-inflation" spiral suggest that the pound may face significant depreciation pressure.

Technical Analysis

Pound Will Face Greater Depreciation Pressure_1

In the 4H timeframe, the GBPUSD has entered a period of consolidation at elevated levels following a recent bullish surge. However, the declining highs and lows suggest waning bullish momentum, increasing the likelihood of a subsequent decline.

Furthermore, the candlestick pattern in the 4H timeframe hints at the potential formation of a head and shoulders top. If the right shoulder materializes, it would significantly increase the probability of a GBPUSD downturn, with an initial downside target testing the 1.2500 support level.

Trading Recommendations

Trading Direction: Sell

Entry Price: 1.2945

Target Price: 1.2520

Stop Loss: 1.3050

Valid Until: April 7, 2025 23:00:00

Support: 1.2887, 1.2500

Resistance: 1.2973, 1.3014

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