The Pound Sterling is under pressure after the latest UK PMI data showed slower business growth than expected. The Composite PMI was at 51.0, lower than the predicted 51.9 and down from June’s 52.0, indicating only a small increase in overall business activity. The Services PMI slowed down, coming in at 51.2 compared to the expected 53.0, while the Manufacturing PMI dropped to 48.2, though still better than forecasts. Chancellor Rachel Reeves’ recent policy changes, including those affecting employers’ social security contributions, have impacted these figures. There has also been a notable drop in staffing levels, with the fastest decline since February.

Looking Ahead to UK Retail Sales Figures

The market is eager for the upcoming UK Retail Sales figures for June, which are expected to show a recovery with a 1.2% increase, following a 2.7% drop in May. However, the Pound is struggling against major currencies, especially the Australian Dollar. On a global scale, optimism about a possible US-EU trade deal is reducing safe-haven demand and affecting the US Dollar. The Federal Reserve’s upcoming decision on interest rates, which is expected to remain unchanged, alongside the US Flash PMI data, are important events to watch. Currently, the GBP/USD is encountering resistance near the 20-day EMA. Given the recent business activity data, we expect the Pound Sterling to weaken further. The S&P Global/CIPS UK Flash Composite PMI dropping to a four-month low of 51.0 shows a clear slowdown in the UK economy, providing a basis for expecting a fall in the currency. Chancellor Reeves’ policies seem to be affecting the job market, with staffing levels experiencing their first decline since last November. This coincides with recent ONS data that shows the unemployment rate has risen to 4.4%. We think this weakening trend in employment might prompt the Bank of England to consider cutting interest rates sooner, which would likely be bad news for the Pound.

Potential Opportunities and Strategies

While the upcoming UK retail sales figures are expected to rebound, we see this as a possible distraction from the overall trend. Historically, a single month of positive consumer data rarely reverses a broader economic slowdown. So, if the Pound strengthens after these figures, it could offer a good chance to take bearish positions. Globally, the Pound’s weak performance against currencies like the Australian Dollar stands out. This suggests Sterling is losing ground for its own reasons, not just due to fluctuations in the US Dollar. The Reserve Bank of Australia’s more cautious approach to rate cuts, in contrast to the Bank of England, highlights this relative weakness. The technical resistance for the GBP/USD pair near its 20-day moving average supports our bearish outlook. Given this barrier and the economic challenges ahead, we believe that buying put options on the Pound is a wise strategy. This enables traders to benefit from a possible decline while managing risk in the coming weeks. Create your live VT Markets account and start trading now.

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