GBP/USD fluctuates on weaker US economic data, ahead of FOMC decision

As the US Fed makes its decision later on Wednesday, the GBP/USD pair remains firm. A busy US economic calendar was not enough to lend support to the US dollar, which is under pressure amid the current risk-off situation.

According to the ADP National Employment Change report, private hiring increased by 106K last month, below the 178K expected. The S&P Global Manufacturing PMI for January rose by 46.9 points above the 46.8 estimates, indicating that factory activity is improving, albeit slowly.

UK’s PMI improved but is still in contractionary territory for the sixth straight month, ahead of Thursday’s BoE meeting. The pair also snaps three days of consecutive losses, and instead rises by 0.22% on Wednesday a few hours before the US policy decision.

With the exception of the dollar, the majority of safe-haven peers have maintained upbeat performance. The GBP/USD exchanges hands at around the 1.2320s area, slightly above the 20-day Exponential Moving Average (EMA).

Data from the United States is mainly ignored by traders who are focusing most of their attention on the Fed. The Sterling holds to early gains following a tranche of US economic data release.

A later report by the Institute for Supply Management (ISM) revealed that the PMI for January sank further, dropping to 47.4 from 48.4 in December for the third consecutive month and pushing the index to its lowest level since May 2020. At the same time, the JOLTs report showed that openings rose to 11.01 M in December, above estimates of 10.25 M.

Even though most of the US data released was worse than expected, the GBP/USD could not gain traction to test the daily high of 1.2345.

The UK economic docket presented the S&P Global/CIPS Manufacturing PMI for January, surprisingly above estimates of 46.7, came at 47 but remained at contractionary territory for a sixth consecutive month. The positive news of the report was that costs are slowing and supply chain pressures are easing.

The EU has reportedly accepted a UK customs proposal allowing goods to flow unchecked from Great Britain to Northern Ireland, while goods set for export into the Republic of Ireland would undergo checks in Northern Irish ports. There had been reports that both sides wanted a deal before April 25. It should be noted that despite Brexit headlines crossing the screens, the GBP barely reacted to that news.

Aside from this, the Bank of England is expected to raise rates on Thursday by 50 bps at its first monetary policy meeting of 2023.

Technically; the GBP/USD has resumed its uptrend, at risk of central bank decisions, increasing the volatility from today until Friday of the current week. On the downside, the 20-day EMA at 1.2286 would be the first critical support, opening the door for further downside once cleared.