**GBP/USD Finds Thin Technical Support Ahead of Global PMIs**
*By Gabriel Debach / FXStreet*
The GBP/USD currency pair is navigating a period of uncertainty as it finds limited technical support ahead of the upcoming release of global Purchasing Managers’ Indexes (PMIs). The pair has held above key levels after a week marked by volatility, as investors brace for critical data that could shape monetary policy expectations for both the United Kingdom and the United States.
**GBP/USD: Navigating a Challenging Landscape**
The past week has highlighted the vulnerability of the British pound against the US dollar. After attempting to reclaim ground above the 1.2700 mark, sterling has struggled to establish significant momentum, with traders showing reluctance to take large directional bets ahead of high-impact economic releases.
Several factors are at play:
– **Technical Structure:** The GBP/USD pair is finding only marginal support from recently established levels, suggesting a lack of conviction amongst bulls.
– **Central Bank Signals:** Market participants remain sensitive to evolving guidance from the Bank of England (BoE) and the US Federal Reserve.
– **Data Dependence:** Both central banks have emphasized that future policy decisions will be closely linked to incoming economic data, making the next round of PMI figures particularly consequential.
**Tuesday’s Focus: Flash PMIs for June**
Global PMI releases are scheduled for Tuesday, with the UK and US at the heart of attention. These timely indicators offer vital insights into the health of manufacturing and services sectors, often serving as leading signals for broader economic performance.
For GBP/USD, the upcoming PMIs represent a critical juncture:
– **UK PMIs:** The previous set of figures for May revealed a deceleration in activity, particularly in manufacturing. If the June numbers disappoint, expectations for BoE rate cuts could be brought forward, weakening the pound.
– **US PMIs:** The US economy has consistently outperformed its peers. Should June figures surprise to the upside, expectations for a hawkish Federal Reserve could resurface, bolstering the dollar.
Markets are presently pricing in a cautious path for both central banks. Any significant deviation in PMIs may shift these expectations swiftly.
**Recent GBP/USD Price Action**
Examining recent price movements, GBP/USD has experienced sizable swings within a relatively tight broader range. The pair’s inability to hold above 1.2700 signals a lack of sustained buying interest. Simultaneously, strong downside breaks are being met with buying, highlighting the importance of support levels below.
Key observations from the technical chart:
– **Support Zone:** GBP/USD is seeing thin, but key, technical support in the 1.2620 to 1.2640 area. This zone has acted as a buffer against deeper pullbacks.
– **Resistance Capping Upside:** The area near 1.2740 stands out as near-term resistance. Any push beyond this could see the pair retest higher levels, but momentum is currently lacking.
– **Momentum Indicators:** Short-term indicators such as the Relative Strength Index (RSI) are neutral to slightly bearish, suggesting further consolidation is possible unless a catalyst emerges.
**BoE and Fed Policy Outlooks in Focus**
The direction of GBP/USD will largely depend on the evolving outlook for interest rates from both the BoE and the Federal Reserve. So far, central bankers have opted for cautious communication, reflecting uncertainty over domestic inflation trends.
Key considerations for each central bank:
**Bank of England:**
– Policymakers have hinted at the prospect of rate cuts later in 2024, contingent on continued evidence of falling inflation.
– The UK’s economic recovery remains uneven, with sectors such as manufacturing lagging behind services.
– Any signs of stagnation or contraction in PMIs may fuel bets on a sooner-than-expected rate reduction, undermining the pound.
**Federal Reserve:**
– The US central bank has kept rates at multi-decade highs, making it an outlier among its peers.
– Recent inflation data has tempered hopes
Read more on GBP/USD trading.