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British Pound Remains Under Pressure Ahead of BOE Rate Cut as UK Construction PMI Falls to Record Low

The British pound initially eased back on the release of UK construction activity figures, but subsequently bounced back amidst broad US dollar weakness.

Focusing on the data on hand, construction PMI plummeted to 31.8 in November from 35.1, signaling the worst contraction in business activity since record-keeping began in 1997. Weakening employment conditions combined with tight credit markets have sapped demand for housing, adding to downside risks for the economy at large. Upcoming UK services PMI results are likely to reiterate this, as the index is forecasted to fall to a record low of 41.2 in November from 42.4. Disappointing readings should also add to speculation that the Bank of England will slash interest rates on Thursday, as Bloomberg News predicts a 100bp reduction to 2.00 percent. Support for GBP/USD looms below at 1.4805, and as long as price holds above that point, there is potential for a retracement higher. However, the trend and interest rate expectations remain overwhelmingly in favor of long-term GBP/USD declines.

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