GBP/USD held above 1.3400 as stronger US PMI offsets fiscal concerns
The British pound (GBP) took wave-breaking price action against the U.S. dollar (USD) on Thursday, maintaining trading near the 1.3400 psychological barrier during the U.S. session as traders digested the latest business activity data on both sides of the Atlantic. The pair showed signs of indecision after 1.3468 back from three-year highs on Wednesday.
On the other hand, the Dollar Index (DXY), which tracks the value of the greenback against six major currencies, recovered modestly from a two-week low to end a three-day losing streak, trading just below 100.00 points.
In May, the U.S. economy performed strongly, and the S & P Global Composite Purchasing Managers Index (PMI) rose to 52.1 from 50.6 in April, indicating a faster expansion. Manufacturing activity improved significantly, with the manufacturing PMI rising from 50.2 to 52.3, while the services PMI rose from 50.8 to 52.3. The broad-based improvement suggests resilience in both sectors as demand remains stable, keeping the Federal Reserve cautious and strengthening the case for keeping interest rates steady in the near term.
Conversely, the United Kingdom (UK)PMI, the S & P Global Composite PMI, rose to 49.4 from 48.5 in April, suggesting a slower pace of contraction in private sector activity. The services sector resumed expansion, with the services PMI increasing from 49.0 to 50.2, while the manufacturing sector remained in contraction, with the manufacturing PMI falling from 45.4 to 45.1. The data gave a mixed picture of the UK economy, with strength in the services sector providing some support for the pound, but underlying weakness in manufacturing remains a drag on the outlook.
However, the upbeat business activity data on the US side was affected by broader concerns about the US fiscal outlook. The House of Representatives has passed a controversial tax and spending plan that projects the federal deficit to widen by nearly $3.8 trillion billion over the next decade. This follows Moody's decision last week to downgrade the U.S. credit rating to Aa1, citing rising debt levels and a deteriorating budget trajectory.
In the UK, UBS predicts that the Bank of England (BoE) will cut interest rates to 3.75 per cent by the end of 2025 to deal with inflationary and wage growth pressures. To complicate matters further, the UK's recent trade deal with the US has drawn criticism from the European Commission, which has accused the UK of potentially breaching World Trade Organisation (WTO) rules. The deal, which includes lower tariffs on certain goods, could strain Britain's post-Brexit relationship with the European Union (EU) and lead to wider market uncertainty.
Market participants are now turning their attention to upcoming data releases and central bank comments. The UK May GfK consumer confidence index is scheduled to be released on Friday. In addition, April's retail sales data will be closely watched for signs of consumer spending trends. In the United States, speeches by Fed officials including Kansas City Fed President Jeffrey Schmid (Jeffrey) are expected to shed light on the central bank's policy outlook.
On the other hand, the Dollar Index (DXY), which tracks the value of the greenback against six major currencies, recovered modestly from a two-week low to end a three-day losing streak, trading just below 100.00 points.
In May, the U.S. economy performed strongly, and the S & P Global Composite Purchasing Managers Index (PMI) rose to 52.1 from 50.6 in April, indicating a faster expansion. Manufacturing activity improved significantly, with the manufacturing PMI rising from 50.2 to 52.3, while the services PMI rose from 50.8 to 52.3. The broad-based improvement suggests resilience in both sectors as demand remains stable, keeping the Federal Reserve cautious and strengthening the case for keeping interest rates steady in the near term.
Conversely, the United Kingdom (UK)PMI, the S & P Global Composite PMI, rose to 49.4 from 48.5 in April, suggesting a slower pace of contraction in private sector activity. The services sector resumed expansion, with the services PMI increasing from 49.0 to 50.2, while the manufacturing sector remained in contraction, with the manufacturing PMI falling from 45.4 to 45.1. The data gave a mixed picture of the UK economy, with strength in the services sector providing some support for the pound, but underlying weakness in manufacturing remains a drag on the outlook.
However, the upbeat business activity data on the US side was affected by broader concerns about the US fiscal outlook. The House of Representatives has passed a controversial tax and spending plan that projects the federal deficit to widen by nearly $3.8 trillion billion over the next decade. This follows Moody's decision last week to downgrade the U.S. credit rating to Aa1, citing rising debt levels and a deteriorating budget trajectory.
In the UK, UBS predicts that the Bank of England (BoE) will cut interest rates to 3.75 per cent by the end of 2025 to deal with inflationary and wage growth pressures. To complicate matters further, the UK's recent trade deal with the US has drawn criticism from the European Commission, which has accused the UK of potentially breaching World Trade Organisation (WTO) rules. The deal, which includes lower tariffs on certain goods, could strain Britain's post-Brexit relationship with the European Union (EU) and lead to wider market uncertainty.
Market participants are now turning their attention to upcoming data releases and central bank comments. The UK May GfK consumer confidence index is scheduled to be released on Friday. In addition, April's retail sales data will be closely watched for signs of consumer spending trends. In the United States, speeches by Fed officials including Kansas City Fed President Jeffrey Schmid (Jeffrey) are expected to shed light on the central bank's policy outlook.
