**GBP/USD Exchange Rate Pressured by Robust US PMI Data: Analysis and Outlook**
*Original reporting by James White, Exchange Rates UK*
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### Overview
The pound sterling (GBP) faced renewed pressure against the US dollar (USD) as robust US Purchasing Managers Index (PMI) data spurred fresh demand for the greenback. The release of stronger-than-expected economic indicators in the United States has intensified debates over the likely path of Federal Reserve interest rates, further influencing the GBP/USD exchange rate. This comprehensive report examines recent price movement, key data releases, major institutional forecasts, and what may lie ahead for the GBP/USD pair.
### Recent GBP/USD Performance
– At the start of the week, the pound-dollar rate retreated from previous highs, closing near 1.2670, its lowest daily settlement since mid-December.
– The move follows a period of relative stability, where the currency pair traded within a narrow range, supported by expectations of Fed easing and improved UK domestic sentiment.
– US dollar strength arose due to its safe haven appeal and positive macroeconomic surprises, which contrast the UK’s mixed data flow in recent sessions.
### Impact of Robust US Services PMI
– On the day, the ISM Services PMI print for the United States came in significantly above consensus expectations, registering at 54.1 versus forecasts around 52.5. Readings above 50 indicate expansion.
– Components of the PMI report highlighted broad-based growth:
– New orders increased, signifying sustained demand.
– Employment strengthened, bolstering optimism for the US labor market.
– The prices paid index edged higher, a signal that inflationary pressures persist.
– The US dollar index (DXY) surged in the wake of the data, underlining market conviction that the US economy remains resilient.
### Market Interpretation and Policy Outlook
#### Fed Rate Cut Expectations Shift
– Following the robust PMI release, traders tempered their bets on aggressive Federal Reserve rate cuts in the first half of the year.
– Fed funds futures now imply odds of a March rate cut at just over 50 percent, compared to over 70 percent a week prior.
– Some analysts now expect fewer rate cuts in 2024:
– Goldman Sachs analysts project three rate cuts this year, down from earlier estimates of four.
– Barclays revised its forecast, citing ongoing resilience in US demand and wage growth.
#### Bank of England Remains Cautious
– Across the Atlantic, the Bank of England maintains tighter guidance on inflation risks and wage trends.
– Governor Andrew Bailey stressed in recent remarks the need for ongoing caution, arguing that inflation remains too persistent to justify imminent rate cuts.
– Traders expect the BoE to begin loosening policy only in the second half of the year, versus the Federal Reserve which could move earlier.
### Economic Backdrop in the UK
#### Mixed Data Signals
– The UK economy’s recent updates have painted a mixed picture:
– Latest GDP printed flat, stoking fears of stagnation.
– Retail data was resilient, with some rebound in holiday spending.
– Wage growth remains elevated, but labor market headline employment slowed modestly.
– The S&P Global/CIPS Services PMI for the UK held in expansion territory but underperformed US figures.
#### Inflation and Policy Considerations
– UK inflation has decelerated from double digits, yet remains close to double the Bank of England’s 2 percent target.
– Persistent wage growth may delay the inflation unwind, cautioning against early policy easing.
– Any signs of sticky inflation or further labor market resilience could provide renewed support to sterling.
### Technical Analysis: GBP/USD
#### Key Levels
– Immediate support is now identified at 1.2650. A sustained break below could open a path toward the 50-day moving average near 1.2600.
– Initial resistance is at 1.2700, with stronger selling interest at 1.2780. Bulls need a decisive break
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