Pound sterling is trading relatively flat near 1.2750 ahead of a data-packed week in the United States.
The Pound Sterling (GBP) trades poorly in Monday’s London session, although it maintains the critical support level of 1.2700 against the US Dollar (USD). The GBPUSD pair swings sideways at the start of a data-packed week in the United States (US), which will begin with the Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) data for May, which will be released at 14:00 GMT.
The UK’s persisting service inflation maintains doubt regarding the timing of BoE rate decreases.
Economists predict the PMI, which measures industrial activity, to increase to 49.8. from the previous reading of 49.2, but remains below the 50.0 threshold that distinguishes expansion from contraction. However, the preliminary S&P Global PMI report for May, another poll that measures activity in the US manufacturing sector, indicated that the PMI jumped to a two-month high of 50.9 from April’s reading of 50.0.
Pound Investors are waiting on the US ISM Manufacturing PMI report to provide new guidance.
Investors will also look at other subcomponents in the PMI report, such as the New Orders and Price Paid indices, which provide information about the manufacturing sector’s demand outlook and changes in input prices. Analysts regard both indices as good leading indications of future inflationary pressures.
Later this week, investors will eagerly await the US ISM Services PMI and the official Employment data, which will be published on Wednesday. and Friday, respectively. Meanwhile, there are no major events on the United Kingdom’s (UK) economic calendar.
Daily Market Movers: Pound Sterling moves back and forth ahead of Manufacturing PMI.
The pound sterling shows little fluctuation against the US dollar. The US Dollar Index (DXY), which tracks the value of the US dollar against six major currencies, is also doing modestly at around 104.60.
The US dollar is struggling for direction as investors hunt for new clues about when the Fed will begin lowering interest rates. Investors are unsure about the timing after the US Personal Consumption Expenditure Price Index (PCE) report indicated on Friday that price pressures remained high in April. However, the report also revealed insufficient Personal Spending data.
The Fed prefers annual core PCE inflation. Inflation increased as forecast by 2.8%. On a month-over-month basis, the underlying data increased by 0.2%, which missed estimates and was lower than the previous figure of 0.3%.
Personal spending increased at a slower rate of 0.2% in April, compared to predictions of 0.3% and the previous release of 0.7%. A major slowdown in consumer spending, which accounts for more than two-thirds of US economic activity, has sparked concerns about a worsening household crisis as a result of the Fed’s decision to keep interest rates higher for an extended length of time.
Following dismal consumer spending data, investors have gained some confidence that the Fed will drop interest rates at least once this year. According to the CME FedWatch tool, the probability of a rate cut at the September meeting has increased to 52% compared to 49% a week earlier.
Investors are still unsure when the Bank of England (BoE) would decrease interest rates.
In the United Kingdom, investors are still unsure when the Bank of England (BoE) would decrease interest rates. Financial markets anticipate that the BoE will begin lowering interest rates following the August meeting. UK annual headline inflation fell sharply to 2.3% in April, but BoE officials remain concerned about poor progress in the service disinflation process. UK service inflation is at 5.9%, driven primarily by wage increases, which is far more than what is required to ensure that inflation returns to the intended rate of 2%.
Meanwhile, UK inflation projections over the next 12 months have fallen dramatically. A monthly Citi/YouGov survey found that popular expectations for the next year decelerated to 3.1% in May, the lowest level since July 2021.
