GBP/USD: Bears target 1.2900 ahead of UK construction PMI?

The bears take a breather in the Asian trades this Tuesday, allowing a minor recovery in GBP/USD from near 1.2930 region, as focus shifts towards the UK construction PMI data for fresh GBP moves.

GBP/USD drops back below 1.2950

The spot is seen struggling hard to extend the bid tone so far this session, as the bulls continue to remain on the back foot following yesterday’s awful UK manufacturing PMI data, which somewhat poured cold water on BOE’s rate hike expectations.

The manufacturing sector activity in the UK economy deteriorated sharply in the month of June, coming in worse-than consensus forecasts, the latest data from Markit revealed on Monday. UK manufacturing PMI hits 3-month lows in June, a big miss on expectations

Moreover, Cable’s recovery fails to garner strength above 1.2950 levels on back of a sharp rally in Treasury yields, which dampens the demand for the GBP as an alternative higher-yielding asset. Meanwhile, higher Treasury yields combined with increased Fed rate hike expectations underpin the sentiment around the US dollar, hence, limiting the GBP/USD recovery. Strong ISM manufacturing bolsters Fed hike case - ING

Markets now await the UK construction sector activity report due later in the NA session for fresh trading impetus. The UK construction PMI is expected to arrive at 55 in June versus 56 booked previously. A worse-than expected reading may not be ruled out, given yesterday’s downbeat manufacturing PMI report.

Also, the BOE’s inflation report hearings before the Treasury Select Committee (TSC) will hog the limelight, as the testimony by the key BOE policymakers will throw fresh light on the future path of the BOE’s monetary policy program.

GBP/USD levels to consider             

To the upside, the immediate resistance is the 1.2955 (daily tops) followed 1.2987 (5-DMA) and then 1.3030 (5-week tops). On the downside, support could be located at 1.2917 (Jun 29 low), 1.2900 (round number) and 1.2886 (10-DMA).