Confidence in sterling is slowly beginning to fade as recent economic indicators from the UK are pointing to a slowing economy.
GBP/USD weakened this morning after Nationwide reported a 0.9% drop in UK house prices in August, continuing from the 0.5% downward trend the prior month. On the positive side, Nationwide believes that further price declines are likely to remain modest as supply and demand dynamics rebalance. Further undermining confidence in the UK economic recovery was a report from Markit and the Chartered Institute of Purchasing and Supply (CIPS) that showed construction slowing in August. The Markit/CIPS Purchasing Managers' Index for construction fell for the third consecutive month to a reading of 52.1, lead by a slowdown in residential construction. The data follows yesterday's report from Markit and CIPS that the UK manufacturing sector is showing signs of cooling. Sterling could come under further selling pressure if this afternoon's US jobless claims and tomorrow's non-farm payrolls come in worse than expected, which is likely to see a flight to safety and hurt GBP/USD.
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