The GBP/USD pair weakened to 1.2695 on Friday as the USD gained strength. The US PMI reached its highest level in over two years in May, indicating positive economic growth. On the other hand, UK inflation data dashed hopes of a rate cut by the Bank of England in June. This led to a decline in the Pound against the Dollar as investors adjusted their expectations for central bank policies.
The pair retreated from its recent high around 1.2760 as the USD saw increased demand. On Friday, key economic indicators such as UK Retail Sales, US Durable Goods Orders, and Michigan Consumer Sentiment Index will be released. The flash US S&P Global Composite PMI for May surpassed market expectations, signaling a strong rebound in economic activity. The Manufacturing PMI and Services PMI also improved, indicating overall strength in the US economy.
The increase in prices of inputs in the manufacturing sector suggested a potential rise in inflation, potentially delaying an interest rate cut by the US Federal Reserve. This boosted the USD and put pressure on the GBP/USD pair. In contrast, the UK CPI inflation report tempered expectations of a rate cut by the Bank of England. Investors now see a lower probability of a rate cut in June, with the focus shifting to later in the year for potential monetary policy adjustments.
Market sentiment towards the Pound has been mixed, with uncertainty surrounding Brexit negotiations and economic growth weighing on the currency. The recent strength in the USD further exacerbated the weakness in the GBP/USD pair. Traders are closely monitoring economic data releases and central bank announcements for clues on future policy decisions, which could impact the exchange rate dynamics in the coming weeks.
Overall, the GBP/USD pair remains under pressure due to a combination of factors including USD strength, positive US economic data, and uncertainty surrounding the Bank of England’s monetary policy. Traders are advised to closely monitor upcoming economic indicators and central bank statements for insights into potential movements in the currency pair. The outlook for the Pound remains cautious, with potential downside risks looming in the near term.
