GBP/USD slips on record debt, soft PMIs
|The British pound has posted slight gains on Tuesday. In the European session, GBP/USD is trading at 1.2302, down 0.60%.
UK debt hits record
UK debt costs soared in December, sending the budget deficit to a record 27.4 billion pounds. This was sharply higher than the November reading of 18.8 billion pounds and the consensus of 17.3 billion pounds. The drivers behind the sharp upturn were rising interest payments and government subsidies for gas and electricity. The government’s bill for the subsidies in December was some 7 billion pounds. Despite the grim debt news, the pound remains steady, thanks to broad US dollar weakness.
UK PMIs for December didn’t help matters, as both the Services and Manufacturing PMIs came in below the 50 level, which indicates contraction. Manufacturing rose slightly to 46.7, up from 45.3 in November and above the forecast of 45.0 points. The Services PMI fell to 48.0, down from the November read and the forecast, both of which were 49.9 points.
The soaring debt and soft PMIs are further signs of a weak UK economy. These are clearly not ideal conditions for raising interest rates, but with inflation at 10.5%, the Bank of England doesn’t really have much choice, as entrenched inflation could cause more damage to the economy than high interest rates. The road back to low inflation promises to be a long one, with the BoE projecting that inflation won’t drop to 5% until late this year.
The US will release Manufacturing and Services PMIs which are expected to remain in contraction territory. Manufacturing is expected to tick lower to 46.1 (46.2 prev.), while Services is forecast to dip to 44.5 (44.7 prev.). If the releases are softer than expected, the US dollar could lose ground as speculation will rise that the Fed may have to ease up on the pace of rates.
GBP/USD technical
-
GBP/USD is testing support at 1.2335. Below, there is support at 1.2233.
-
There is resistance at 1.2499 and 1.2601.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.