The Pound Sterling has risen to 1.2770 against the US Dollar as the US ISM Manufacturing PMI for May missed estimates, causing the US Dollar to weaken. The decline in the Manufacturing PMI to 48.7 reflects a contraction in factory activity, with other subcomponents like the New Orders Index and Prices Paid Index also showing negative trends. Investors are now looking towards the upcoming US ISM Services PMI and Employment data, while the UK remains uncertain about the timing of BoE rate cuts due to stubborn service inflation.
The US Dollar Index (DXY) has fallen to 104.25 following the weak US ISM factory activity data and slow growth in Personal Spending. Concerns over a deepening household crisis have increased as Personal Spending decelerated and price pressures remained elevated in April. This has raised expectations for a rate cut by the Fed, with the CME FedWatch tool showing a higher probability of a rate cut in the September meeting. In the UK, the BoE is expected to start reducing interest rates from the August meeting, despite concerns about slower progress in service disinflation and high service inflation driven by wage growth.
Technical analysis shows that the Pound Sterling is attempting a breakout of the Descending Triangle formation in the 4-hour time frame, with support from the 50-day Exponential Moving Average (EMA) and the 14-period Relative Strength Index (RSI) above 60.00. This indicates a potential upside momentum for the GBP/USD pair. The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) is a leading economic indicator that gauges business activity in the US manufacturing sector. A reading above 50 signals expansion in the manufacturing economy, which is bullish for the US Dollar, while a reading below 50 indicates a decline in factory activity, bearish for USD.
Overall, the Pound Sterling has strengthened against the US Dollar amid weak US economic data, leading to speculation of a Fed rate cut. The UK remains uncertain about the timing of BoE rate cuts due to high service inflation, while technical analysis shows potential for a breakout in the GBP/USD pair. Investors will continue to monitor economic indicators like the ISM Services PMI and Employment data, as well as inflation expectations in the UK. The US Dollar weakens as price pressures remain elevated, leading to concerns over a deepening household crisis. The Pound Sterling’s rise reflects market sentiment towards potential rate cuts by central banks in both countries.
