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Monday, March 1, 2021

GBP/USD pulls back as Brexit uncertainty clouds positive outlook

  • The GBP/USD declined today as investors continued to worry about Brexit.
  • Data from the UK showed that the construction sector remained strong in September.
  • In the US, data showed that the trade deficit continued to widen in August.

The GBP/USD pair is down slightly today as traders reflect on the uncertainty about Brexit. The pair is also reacting to data from the United States and the UK. It is trading at 1.2950, which is a few pips below the intraday high of 1.3000.

GBP/USD pulls back as Brexit uncertainty

UK construction sector remains resilient

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The construction sector plays an important role for the British economy. It is the third-biggest contributor to the GDP after services and manufacturing. Before the pandemic, it created more than 2.4 million jobs.

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In recent months, the housing sector has done relatively well as more people take advantage of low interest rates. Indeed, more than 70k people got mortgages in August, which was a record number.

And today, data from Markit and the Chartered Institute of Procurement and Supply (CIPS) showed that the construction PMI rose to 56.8 in September. That was a better performance than the previous month’s 54.6. The median estimate by economists polled by Reuters was 54.0.

The homebuilding sector was the strongest as companies increased their expansion for the fourth straight month. Commercial development also increased while civil construction fell for the second consecutive month.

New orders jumped for the fourth straight month while companies continued their purchasing activities. Business confidence also rose to the highest level in 12 months. However, employment in the construction sector continued to weaken while the cost of building rose. In a statement, Duncun Brock of CIPS said:

“UK Construction took off in September, soaring ahead of both the manufacturing and service sectors in terms of output growth and recording the fastest rise in purchasing activity since October 2015.”

This data came a day after Markit released better-than-expected UK services PMI numbers.

US dollar declines

The GBP/USD pair declined even as the US dollar declined against key peers. It dropped by 0.17% against the Swiss franc, 0.20% against the euro, and by 0.10% against the Canadian dollar.

Meanwhile, data from the US showed that the country exported goods worth more than $171.9 billion in August. That was ~$3 billion less than the $168 billion it exported in the previous month. At the same time, the country’s imports rose from $231 billion to $231 billion. As a result, the trade deficit widened to more than $67.1 billion.

According to the Bureau of Economic Analysis, the US trade deficit with Germany increased by $1.6 billion to $4.6 billion while that with Japan rose by $1 billion to $4.3 billion. However, the deficit with China fell by $1.9 billion to $26.4 billion. That was because the exports increased by $1.7 billion to $11.2 billion.

GBP/USD technical outlook

GBP/USD technical analysis

The daily chart shows several things about the GBP/USD pair. First, it has made a head and shoulders (H&S) pattern, with the neckline at 1.3000. The price also found strong support at the 38.2% Fibonacci retracement level at 1.2690. Also, the signal and main line of the MACD indicator have made a bullish crossover. All this implies that the pair is likely to continue rising. However, it is worth noting that the pair has also formed a bearish flag pattern that is shown in red. Therefore, there is also a possibility of the pair pulling back and retesting the 38.2% retracement level.

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