The GBP has an important week ahead of it. The Pound has been weaker against its higher-yielding commodity rivals as we have seen the Bank of England conduct another round of quantitative easing – a monetary policy move that tends to pressure a country’s currency. To gauge whether the GBP will fall further this week, we want to examine an important week of data highlighted by 3rd quarter GDP data, and our freshest looks at the manufacturing and services sectors.

GDP for 3rd Quarter

On Tuesday, the UK releases its first reading of 3Q GDP. It’s the 1st version of out 3, and it is forecast to show a 0.4% increase compared to very tepid 0.1% growth in the second quarter.

The there is major concern that the UK economy can post flat or negative growth in the fourth quarter and therefore disappointment in the 3rd quarter would further the case that the central bank did the right thing in conducting further quantitative easing. A positive surprise could mean that the bank was too pessimistic and in fact could draw back some of its extra QE if needed.

Manufacturing and Services PMI’s

Being the first week of the month we get key tier 1 releases from the UK including the manufacturing and services PMI’s – our most timely measures for economic activity.

In September, the UK surprised analysts by posting better-than-expected manufacturing (51.1 vs 48.9 forecast) and services (52.9 vs 50.6 forecast) PM readings and so it’s important to see what happened during the month of October.

Here’s a look at the manufacturing PMI:

As we can see the manufacturing sector has slid sharply the previous few months but after dipping below the 50 level separating expansion from contraction we did see it rebound in September. Second straight month of positive manufacturing activity would be a welcome sign for the UK economy. Expectation is for a 50.0 reading.

Here is a look at the Services PMI:

The Services PMI, due out on Thursday, is expected to slow to 51.9 from Septembers 52.9. A positive surprises here would help to boost the Pound as it would mean that despite the troubles the UK economy the services sector continues to expand.

Impact/Implication of UK Fundamentals This Week

In addition to key readings on GDP, manufacturing and services we get a look at a couple of key housing indicators including the Nationwide house price index as well as the bank of Halifax house price index. Both are expected to show 0.1% increases in prices for the month of October.

A round of positive data would help to boost the GBP, while macro releases that comes in on the weak side should work to further depress the GBP against its higher-yielding rivals.

See my write-up from last week: The UK Fundamental Picture Supports a Weaker GBP vs AUD, NZD

The reaction in the GBP/USD may depend more on general risk sentiment in the market during the week. The GBP/USD has managed to move higher during October, and if we have a general “risk-on” type of week then the data can help to push the GBP/USD around within the confines of what has been an uptrend. Weaker reports would cause dips that may be interesting buying opportunities while better than expected news would push up higher in our current trend. If risk-off trading dominates then we could see the GBP/USD retracing its steps from last week.

Therefore a lot rides on this week of data for the UK. The main attraction will be that 3Q GDP release and second in importance will be the services and manufacturing reports. If those readings come in weaker than expected then the pound will be pressured, while better-than-expected results could mean a bounce back week for the pound.