GBP/USD: Eyes UK PMI, trade wars and risk aversion could hurt Pound

• UK PMI expected to show a slight drop in the pace of expansion in manufacturing activity.
• Trade wars, risk aversion could hurt Pound.
• Lowered growth/inflation expectations in the advanced world could benefit USD.

The GBP/USD avoided a break below 1.40 during the Easter holidays, but the relief will likely be short-lived if the trade war fears drive stocks lower and UK PMI misses estimates by a wide margin.

As of writing, the GBP/USD pair is mildly bid around 1.4060, but well below the last week's high of 1.4245.

The British Pound has zero anti-risk appeal, given the massive current account deficit and Brexit uncertainty. Hence, the currency could take a hit if the European stocks drop sharply in response to rising odds of a full-blown US-China trade war.

Focus on UK PMI

UK manufacturing PMI, due at 08:30 GMT, is expected to show the pace of expansion in the activity slowed to 54.5 index points in March vs. 55.2 index points in February.

A below-forecast print could only make matters worse for Pound. Meanwhile, a better-than-expected number could strengthen the bid tone around the GBP, helping it counter the negative impact of a possible risk aversion in the stocks.

Also, note that the greenback will likely benefit from the lowered inflation/growth expectations as represented by the pullback in the government bond yields across the advanced world. So, a big move to the upside is easier said than done.

GBP/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes:

"From a technical point of view, the 4 hours chart shows that the pair pulled back to the daily descendant trend line broken last week, meeting selling interest near it and also around a bearish 20 SMA, a sign of bulls being not actually convinced."

Support levels: 1.4010 1.3985 1.3940

Resistance levels: 1.4040 1.4085 1.4125