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UK flash PMIs to recover further as economy reopens

23 April 2021

The latest batch of British data will hit the markets on Friday. Retail sales will be released at 06:00 GMT ahead of the flash Markit PMIs at 08:30 GMT, which are expected to improve as lockdown restrictions were relaxed. After being weighed by vaccine troubles, the British pound is on a stronger footing as the UK economy slowly reopens. Upbeat data on Friday could further bolster the pound’s rebound.

Long road to recovery

The Markit services PMI is forecast to have risen to 59.0 in April’s preliminary reading from 56.3 previously, staying above the 50 level, supported by a rise in total new work for the first time in six months after the easing of lockdown measures. The manufacturing PMI is also forecast to have increased to 59.0, which is still a strong figure supported by stronger demand for expansion in factory activity since February 2011.

Retail sales for March that are due prior to the PMI release will probably confirm a weaker figure. Growth in retail sales is forecast to have declined by to 1.5% on a monthly basis in March from 2.1% before, which seems natural as the lockdown restrictions remained in place during the month and only eased at the beginning of April.

Hospitality businesses, such as restaurants and pubs, have been allowed to serve people in outdoor settings only. On a yearly basis, retail sales are expected to have jumped to 3.5% from a contraction of -3.7% prior.

All eyes on vaccination

More than 33 million people in the UK have received at least one dose of the Covid-19 vaccine, while more than 10 million have been inoculated with the second dose, according to the latest government figures.

However, vaccine supply issues have been causing some delays to the rollout in April. But if the supply problems are resolved and the UK can continue its vaccination program at a good pace, expectations for a stronger recovery should continue to build and the pound could continue to dominate its FX partners.

Cable battles with 1.40

Coupled with a weaker dollar, cable is currently having another pop at the 1.4000 level since the beginning of the week. If the greenback remains under selling pressure, a convincing break above the 1.4000 psychological level is possible in the near term. Above that handle, the next key levels that could be targeted are the 35-month peak of 1.4235, followed by the 1.4345 barrier, registered in January 2018.

However, if the dollar makes another attempt at a rebound or the UK’s virus fallout unexpectedly worsens again, GBPUSD could initially tumble towards the 1.3670 support, below the ascending line before testing the 23.6% Fibonacci retracement level of the up leg from 1.1405 to 1.4235 at 1.3570 ahead of the 200-day SMA which stands slightly below the 1.3435 support.

With the UK now out of the EU, the economy is more exposed than ever to global risks and getting everyone vaccinated may only be part of the solution to getting the country back on its feet.


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