GBP/USD Forecast: Pound Sterling attracts buyers on strong UK PMI

GBP/USD declined to 1.2450 in the American session and closed in negative territory on Wednesday, snapping a three-day winning streak. Improving risk mood and upbeat UK PMI readings helped the pair regain its traction and stabilize above 1.2500 early Thursday.

The US Dollar gathered strength mid-week as US Treasury bond yields rebounded after the weekly data from the US showed that the number of first-time applications for unemployment benefits declined to the lowest level since early October at 209,000. 

The UK autumn statement failed to trigger a noticeable reaction in markets as investors already knew about the details of the budget proposal.

Commenting on the potential impact of planned tax cuts on Pound Sterling, "lower taxes and public spending are possibly going to be welcomed by Tory voters due to the effects on the individual, but I find it difficult to believe that FX traders and/or a large share of the electorate will believe in the Laffer curve," said Commerzbank analysts Ulrich Leuchtmann and Tatha Ghose, arguing that tax plans are not going to be interpreted as a GBP-positive factor in this case.

In the meantime, S&P Global/CIPS Composite PMI in the UK improved to 50.1 in November's flash estimate from 48.7 in October and provided a boost to Pound Sterling. This reading showed that the private sector's business activity moved out of the contraction territory. Assessing the survey's findings, "November’s data reveals welcome signs of calmer waters ahead for the UK economy, albeit with indications that there is still a little way to go before we are completely out of the inflationary storm," said Dr John Glen, CIPS Chief Economist. Additionally, the Manufacturing PMI and the Services PMI rose to 46.7 and 50.5, respectively.

The market action is expected to turn subdued in the second half of the day, with trading volumes thinning out on Thanksgiving Day in the US.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart managed to hold above 50, suggesting that Wednesday's decline was a technical correction rather than the beginning of a reversal. GBP/USD, however, still trades above the upper-limit of the ascending regression channel and buyers could opt to wait before betting on additional gains in the near term.

On the upside, 1.2550 (static level) aligns as first resistance before 1.2600 (Fibonacci 50% retracement of the July-October downtrend) and 1.2670 (static level from August).

In case the pair returns below 1.2500 (psychological level, upper limit of the ascending channel), 1.2450 (50-period Simple Moving Average (SMA) on the 4-hour chart, static level) could be seen as next support before 1.2400 (psychological level, mid-point of the ascending channel).