GBP/USD Pulls Back After Reaching New Highs

The GBP/USD pair experienced a pullback after reaching a year-to-date high of 1.2678 and testing the 100-day Simple Moving Average (SMA) at 1.2658. The pair subsequently stabilized near 1.2660. This movement occurred despite positive UK retail sales data for January, which showed a 1.7% month-over-month increase, exceeding expectations.

US economic data presented a mixed picture. While the February manufacturing PMI rose to 51.6, surpassing forecasts, the services PMI fell into contractionary territory, declining from 52.9 to 49.7. This decline in the services sector dragged the Composite PMI down to 50.4 from 52.7, signaling a weakening of overall business activity in the US.

In the UK, alongside the strong retail sales figures, S&P Flash PMIs presented a mixed bag. The manufacturing index contracted, while the services sector showed improvement, rising from 50.8 to 51.1. This mixed data environment complicates the Bank of England’s (BoE) policy decisions. Despite the bank’s move towards an easing cycle, inflation and wages remain elevated. Consequently, the GBP/USD pair has seen further strength as traders have priced in fewer BoE rate cuts this year.