Investors are concentrating on the latest month’s Purchasing Manager Indexes and the effect of the Bank of England rate hikes. The UK and the European Union have released their purchasing managers indexes for the manufacturing and services sectors. Unexpectedly, the economic data read much lower than previous expectations, pressuring both the Pound and the Euro. The PMI data is considered a strong price driver as it indicates the economic condition and the chances of economic growth and contraction.
In addition to the above economic data, investors continue to sell the Pound and purchase Gilts and other types of bonds. This is in response to the increased possibility of a UK recession and the expectation of lower economic activity. Higher interest rates can potentially increase demand for a currency; however, investors should also note the risk sentiment towards the economy and currency. The FTSE100 has also declined by almost 2% in 2 days in response to the 50 basis point rate hike and lower PMI data.
Lastly, Bitcoin’s price movement continues to trade within a price range and a retracement but continues to hold onto gains. As mentioned during yesterday’s market analysis, the price of Bitcoin and cryptocurrencies, in general, have been supported by large institutions forming ETFs for Bitcoin. Bitcoin is trading 14% higher than the weekly open price. The total cryptocurrency market capitalisation slightly declined by 0.59%. However, the market share of Bitcoin rose by 0.23%.
GBP/USD
The Pound against the Dollar is trading lower during this morning's Asian and European Session. The exchange rate declined to a new 8-day low but remained relatively higher than the previous impulse wave. As the exchange rate is still trading above the previous resistance level, the instrument may still witness a continuation of the trend. However, the trend can change if the price declines below 1.2680.
GBP/USD 30-Minute Chart on June 23rd
As mentioned above, the price movement of the Pound is under pressure from the risk of a recession and extremely low investor confidence. In addition to this, the poor PMI data added to investors' concerns. The Manufacturing PMI read 46.2, whereas investors were expecting 46.9. The Services PMI read 53.7, again lower than the 54.8 expectation. The manufacturing index indicates a recession, whereas the services sector indicates a slowdown in economic activity. Economists also point out that as business activity declines, firms cannot continue increasing salaries. Over the past 12 months, UK salaries have increased by 7%, more than that deemed appropriate.
The Pound experiences mixed price movements when looking at the currency’s performance across the market. The Pound is declining against the Dollar and Yen but is appreciating against the Euro, Franc and Australian Dollar. The US Dollar Index is also increasing in value, mainly due to the declining Euro. The US Dollar Index increases to 102.99 and has increased in value by 0.58%.
The price movement of the GBP/USD in the short term is moving in favour of the Dollar and is trading in the “trend” zone of the regression channel. However, on the larger timeframes, the price still indicates an upward trend with a retracement in favour of the Dollar. If the price continues to decline below 1.2680, trend indications may intensify.
EUR/USD
Furthermore, the German PMI was specifically poor and much lower than the UK’s data. As a result, the Euro is declining against the Dollar and across the currency market. The EUR/USD declined by more than 1.00% before the exchange rate found minor support and retraced. The data indicates a recession and makes the economy more fragile to external pressures and rate hikes. The data is not yet enough to pressure the ECB into not hiking one more time, but if inflation continues to decline, a pause will be more likely.
The German Manufacturing PMI declined to 41.0, the most significant drop over three years. Economists were initially expecting the PMI to increase to 43.6. The Services PMI fell from 56.3 to 54.1. In addition, the French Services PMI dropped below 50.0 for the first time in 6-months.
Investors will now be paying attention to the US PMI release this afternoon. This announcement will increase volatility for all major currency pairs, including the EUR/USD and GBP/USD.
EUR/USD 1-Hour Chart on June 23rd
Summary:
- The Pound is under pressure from the risk of a recession and extremely low investor confidence.The Manufacturing PMI read 46.2, whereas investors were expecting 46.9. The Services PMI read 53.7, again lower than the 54.8 expectation.
- The German Manufacturing PMI declined to 41.0, the most significant drop over three years. Investors will now be paying attention to the US PMI release this afternoon.
- Bitcoin is trading 14% higher than the weekly open price. The total cryptocurrency market capitalisation slightly declined by 0.59%. However, the market share of Bitcoin rose by 0.23%.