Pound drops as UK construction growth slows

Pound drops as UK construction growth slows

UK construction PMIThe British pound pared its earlier gain against the U.S. dollar after a report showing U.K. construction sector expansion eased expansion in April.

PMI manufacturing recorded 54.2, the slowest pace in almost two years, down from 57.8, compared to economists’ consensus forecast for a slight fall to 57.5.

The pound halted its rally after hitting a peak of 1.5495 versus the U.S. dollar last week after the release of weak economic data, which raised doubts about the chances of the Conservative party to win Parliamentary elections.

U.K. PMI manufacturing recorded 51.9, down from 54.4, while the services sector data due on Wednesday may show a slowdown in growth to 58.6 in April from 58.9.

Data released last week signaled a slowdown in U.K.’s first-quarter growth to the slowest since the fourth quarter of 2012.

It is worthwhile to mention that historically the sterling tended to react positively to the win of the Conservative Party in elections.

Meanwhile, David Cameron faces a daunting challenge with just one day before elections, as he based his campaign on the strength of the economy that expanded 2.8 percent last year, the strongest among all G7 economies.

GBPUSD

Following the release of the data, the GBPUSD fell from a high of 1.5149 to trade near the session’s opening around 1.5120.

The pair resumed its drop for a third straight session on Monday to end its rally that began in mid-April.

The GBPUSD climbed nearly 3.6 percent last month after the release of pessimistic reports from the United States, which raised speculations the Fed may delay its rate hike to 2016.

It appears on the weekly chart that the pair failed to remain above the solid 23.6 percent Fibo resistance for the downside trend that began in July 2014.

The 50-center line for the RSI 14 momentum indicator now acts as resistance that needs to be breached to guarantee the continuation of the GBPUSD rebound.

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Ahmed Mamdouh

Ahmed Mamdouh, Co-Founder and Head of English Fundamental Analysis at FXComment.com, with 7 years of experience in the financial markets. Mamdouh holds a Master’s Degree in Economics from The American University in Cairo and a Bachelor Degree in Economics from The Faculty of Economics and Political Science, Cairo University.

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