FTSE 100 Barclays

Pound Set to Fall Versus the Chinese Yuan on Growth Gap

The GBPCNY pair is 0.5% lower on the day as the market digests strong economic data out of both countries in recent days. Today’s release was actually positive for the U.K. with Nationwide House Prices showing a record high for property in the country. The 2% jump from July is the biggest month-on-month increase since 2004 and prices were 3.7% higher than a year ago.

Yesterday saw strong figures out of China as its factory activity expanded at the fastest pace a decade during August. The Caixin/Markit Manufacturing Purchasing Managers’ Index(PMI) rose to 53.1 from 52.8 in July, which was the fourth consecutive monthly increase.

Although recent data has been promising from the U.K. the Chinese economy was less affected by the lockdowns and looks like it will bounce back stronger. The most recent GDP figures showed China had the strongest second quarter of the major economies with 11.5% growth, whilst the U.K. had one of the worst with a record -20.4%.

The growth difference between the two countries makes it likely that the Chinese Yuan will advance against the Pound and the situation may worsen for the U.K. as the flu season approaches and local lockdowns are still ongoing in parts of northern England and Scotland. Cases are also creeping higher and the risk of another economic freeze is a possibility.

GBPCNY Technical Outlook

The GBPCNY pair has found resistance at the 9.189 level and this is creating a double top formation. The pair now trades at the 9.095 level and the support is at 9.034. Below that level there is not much support through the 9.000 level with 8.9000 also being a price channel support. The short side could be reversed if support holds at 9.034.

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GBPCNY Daily Chart

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