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GBP/USD slumps below 1.26 as USD preserves strength

  • Upbeat PMI data from the UK fail to help the GBP on Wednesday.
  • US Dollar Index extends recovery, moves closer to 97. 
  • The manufacturing sector continues to expand in the U.S.

After posting weekly gains in the last two weeks of the year, it took a single day for the GBP/USD to erase all these winnings on Wednesday. The pair lost more than 150 pips today and broke below the 1.26 mark to touch its lowest level since December 17 as the British pound struggled to find demand. As of writing, the pair was down 1.2% on a daily basis at 1.2598.

Although there were no clear catalysts that could have increased the selling pressure on the GBP, the broad-based USD strength forced the pair to record heavy losses. The US Dollar Index, which edged lower toward the 96 handle toward the end of 2018, rebounded decisively and was last seen up 0.7% on the day at 96.75. Furthermore, investors seem to be staying away from the pound sterling ahead of the Brexit vote in the Parliament.

Earlier today, the Manufacturing PMI report published by the IHS Markit showed that the business activity in the manufacturing sector in the UK expanded at a faster pace than expected with the headline index improving to 54.2 and surpassing the analysts' estimate of 52.5. Meanwhile, according to The Financial Times, a recent survey conducted by IPSOS Mori showed that 74% of the 500 biggest companies in the UK were pessimistic about the year ahead.

Later in the day, the same PMI data for the U.S. came in at 53.8 in December, down from 55.3 in November. Nevertheless, both of these readings were largely ignored by the participants.

On Thursday, the IHS Markit will publish the Construction PMI data from the UK. In the second half of the day, investors will be watching the ADP private sector employment report from the U.S.

Technical levels to consider

With a daily close below 1.2600 (psychological level), the pair could extend its losses toward 1.2530 (Dec. 14 low) and 1.2500 (psychological level). On the upside, resistances are located at 1.2645 (20-DMA), 1.2700 /psychological level) and 1.2760/70 (50-DMA/daily high).

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