GBP/USD flattened ahead of UK PMIs, US Factory Orders

The British pound’s performance is flat during the day, though slightly positive after a noticeably quiet trading day. Weaker UK economic data, high inflation, and slowing growth paint a stagflationary scenario for the GBP.

On Tuesday, the UK S&P Global/CIPS Services and Composite PMIs to shed additional information on the British economy as the Bank of England, which has raised interest rates five times since December, is attempting to tackle soaring inflation while avoiding a recession

During the US session, the sterling’s performance is passive around the 1.2100 mark after retracing from daily highs around 1.2165. The GBP/USD pair is trading around 1.2104. Last week’s poor UK economic data and its weaker economic outlook acted as a headwind for the GBP/USD pair.

Sterling rose against the dollar and euro, as traders focused on any signals that the Bank of England could raise interest rates faster than expected.

European equities finished mixed in the session, while in the safe-haven peer currencies fell. The rule exception is the US dollar, which is gaining versus the pound. Given that the UK’s consumer confidence dropped to its lowest level since records began in 1974 and high inflationary pressures are rising, the GBP/USD might weaken ahead due to its stagflation concerns.

Brexit agitations are back in the news once the UK wants to break the Brexit deal agreed with the EU two years ago. Meanwhile, expectations of the Bank of England’s hiking rates aggressively eased the tone for the August 4 meeting. The odds of a 50 bps rate hike lie at 65% versus 75% expected last week, and expectations for the subsequent meetings were lowered, as shown by STIR’s money market futures.

In the meantime, Scotiabank analysts, in a note, wrote that they see limited upside potential for the GBP, given the backdrop of “a weak economy and at risk of continued losses from overextended BoE hike expectations.”

There is no major data out this week that could improve the GBP’s luck, and the currency should mostly follow the USD tone. The BoE publishes its semi-annual Financial Stability Report tomorrow, with BoE’s Silvana Tenreyro speaking later in the day, while other addresses from Huw Pill, Jon Cunliffe, and BoE’s Catherine Mann later in the week will also help to refine expectations for BoE tightening over the next few meetings.

On the data front, the UK economic docket will feature S&P Global/CIPS UK Services and Composite PMIs for June, alongside the Financial Stability Report. Also, the Bank of England (BoE) Governor, Andrew Bailey, will give a speech. In the United States, the US calendar will reveal Factory Orders for May, ISM Non-Manufacturing PMIs, Fed speakers, and the US Nonfarm Payrolls report for June.