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25 Jan 2024

GBP/USD extends its losses following the recent pullback, trades around 1.2710

  • GBP/USD retreated from the two-week high at 1.2774 on Wednesday.
  • Upbeat US PMI data neutralized the positive impact of UK PMI figures on Pound Sterling.
  • The positive UK PMI figures could influence BoE to cut interest rates in the February meeting.
  • BoE is expected to initiate a rate-cutting cycle in the August meeting.

GBP/USD experiences a downward trend, following the pullback from a recent two-week high at 1.2774 on Wednesday. During the Asian session on Thursday, the GBP/USD pair trades lower near 1.2710. The Pound Sterling (GBP) initially received support following positive Purchasing Managers Index (PMI) data from the United Kingdom (UK). However, this upward momentum could not be sustained after the release of upbeat PMI data from the United States (US).

The preliminary S&P Global/CIPS Services Purchasing Managers' Index (PMI) for January in the United Kingdom demonstrated growth, registering a reading of 53.8 compared to the previous figure of 53.4. The Manufacturing PMI also showed improvement, increasing to 47.3 from the earlier reading of 46.2. Simultaneously, the Composite PMI, which combines both services and manufacturing sectors, appreciated, reaching a figure of 52.5 compared to the previous reading of 52.1.

The positive Purchasing Managers Index (PMI) figures suggest that the Bank of England (BoE) may choose to refrain from implementing monetary policy loosening measures in the upcoming February meeting. However, investors appear to be anticipating that the BoE will initiate a rate-cutting cycle starting at its August meeting. Market expectations imply rate cuts by 175 basis points (bps) throughout the cycle, with the policy rate reaching 4.50% by December 2024.

The positive S&P Global Purchasing Managers Index (PMI) data from the United States (US) on Wednesday could reduce the probability of rate cuts by the Federal Reserve (Fed) in March, leading to a decline in the GBP/USD pair. Additionally, market sentiment reflected in the CME's FedWatch tool indicates that bets on a March rate cut from the Fed have dropped to below 40%, a substantial decrease from around 80% recorded just a month ago. Investors will likely watch the US Gross Domestic Product Annualized (Q4) data scheduled for release on Thursday.

US S&P Global Manufacturing Purchasing Managers' Index (PMI) surged to an 11-month high of 50.3 in January, exceeding the forecast of remaining consistent at 47.9. The US Services PMI recorded a rise to 52.9, surpassing the expected reading of 51 and the previous figure of 51.4. Overall, the Composite PMI for the United States increased to 52.3 from the previous reading of 50.9. This comprehensive indicator, combining both manufacturing and services, points towards an expansion in economic activities across sectors.

 

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