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The Pound Sterling struggled to gain momentum against the U.S. Dollar on Thursday, despite positive UK economic data. The GBP/USD pair hovered just below 1.3100, suggesting that investors remain cautious about further gains due to uncertainty surrounding the Federal Reserve’s interest rate policy.
A break above 1.3100 could lead to a rally towards the year-to-date high of 1.3130 and potentially even 1.3200. However, if the pair fails to hold above 1.3100 and closes below it for a second consecutive day, a pullback could be on the cards. Support levels to watch include 1.3010 and the August 13 high of 1.2872.
Earlier, on Thursday’s early New York session, the Pound Sterling (GBP) gives up all of its intraday gains and falls below 1.3100 against the US Dollar (USD). The flash August S&P Global Composite PMI data for the United States (US) came in stronger than predicted, but the GBP/USD pair finds it difficult to carry its winning run into its sixth trading day on Thursday.
US Business Activity Accelerates, but Manufacturing Contracts
The U.S. economy showed signs of strength in August, as overall business activity expanded at a faster-than-expected pace. The Purchasing Managers Index (PMI) rose to 54.1 from 54.3 in July, driven primarily by robust demand in the service sector.
However, the manufacturing sector experienced a significant downturn, with the manufacturing PMI falling sharply to 48.0. While economists had anticipated a contraction in manufacturing activity, the decline was more pronounced than expected. In response to the stronger-than-expected economic data, the U.S. Dollar Index (DXY) surged, reaching 101.60 from 101.00, its lowest level of the year.
The outlook for the US dollar is still unclear, though, since there is mounting rumor that the Federal Reserve (Fed) may begin cutting interest rates following its meeting in September. Investor confidence in the Federal Reserve’s (Fed) decision to return to policy normalization has grown as a result of the FOMC minutes from the July 30-31 meeting, which revealed that some policymakers had previously proposed lowering borrowing rates. According to the minutes, however, the “vast majority” of officials stated that “it would likely be appropriate to ease policy at the next meeting if the data continued to come in about as expected.”
