British Pound Strong Despite Weak Economic Reports

The United Kingdom (U.K.) reported today that construction activity depreciated in the country. According to the Markit, purchasing managers index (P.M.I.) for the sector output lowered from 53.2 in December to 51.4 in January. Yet, the December index fell lower than economists’ 52.5 projections. For the sector, commercial activity increased but was negated by activity reductions in the civil engineering and housing areas. Construction companies were increasingly optimistic for January indicating that new orders and output had picked up. The greater than 50 P.M.I. can be attributed to increases in business confidence with the expectations for the sub-index to increase to 66.1 January from 57.6 in December. Manufacturing makes up 10.0% of the country’s gross domestic product (G.D.P.) while construction partakes in about 7.5% of it. As the service sector makes up the majority of G.D.P. economists are looking forward to their index release Friday.

In other news, the United States (U.S.) Labor Department reported today that first time unemployment benefit claims lowered 12,000 to a seasonally adjusted 367,000 count. Additionally, the four week average calculated to 375,750, less than the previous four week figure. The four week low is the second lowest seen since June 2008 below the 375,000 mark that typically indicates hiring is high enough to reduce unemployment. With the news, economists are expecting employment numbers will have increased 155,000 and unemployment will stay at 8.5% in January. The job market has a lot of progress to make as more 13 million individuals remain unemployed.

The GBPUSD has rallied over 600 pips since hitting a low of 1.5250 on January 13^th. The pair has hit resistance at 1.5880 which was the high established on 18^th November. If we hear more positive news out of Europe and the GBPUSD breaks above 1.5900, we expect the pair to target 1.6100. On the other hand if the situation in Europe continues to get worse we expect the pair to settle near 1.5600 in the medium term.

Eugene Ross, Analyst

Admiral Markets

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