GBP/USD Falls Following US Manufacturing Data

Strong US manufacturing activity and pricing pressures have caused the GBP/USD to decline, which may feed concerns of a sustained Fed policy. Due to holiday closures, the US economy is resilient while European markets are quiet. The GBP/USD exchange rate may be weighed down by upcoming UK PMI data releases, as market players anticipate additional declines.

Midway through the North American session, the pound sterling falls as strong US economic statistics may undermine the Federal Reserve’s plans to lower interest rates. A challenge for the GBP/USD pair was the US Treasury yields’ sharp increase, which supported the US dollar.

According to the Institute for Supply Management (ISM), the US economy showed signs of resiliency in March as corporate activity increased for the first time since September 2022. The Manufacturing Purchasing Managers’ Index (PMI) improved from 47.8 in February to 50.3, beyond the estimate of 48.4. The Prices Paid Index increased as well, reaching its highest level since August 2022, according to the report. Price pressures are starting to pick back up, which could make the Federal Reserve less inclined to loosen monetary policy.

Based on data from the CME FedWatch Tool, money market traders reduced the probability of a rate cut by the Federal Reserve in June from approximately 60% to 56.9%. Although the US central bank is not in a rush to lower rates, Fed Chair Jerome Powell stated last week that the Consumer Price Index is still over the 3% mark.

On Tuesday, the UK economic docket will feature the release of Housing Prices, the BoE Consumer Credit, and the S&P Global Manufacturing PMI.