GBP/USD steadies on US PMI as UK data retriggers recessionary woes

The GBP/USD pair remains stable at 1.2690, despite the slowdown in US manufacturing activity. UK data shows slight improvement but remains in recessionary territory, raising economic concerns.

The US Manufacturing PMI poll revealed that business activity is deteriorating further, with input prices slowing down, signaling inflation edges down amidst 500 basis points of rate increases by the US Fed.

The GBP/USD reacted upwards to the data, trimming speculations of the Fed’s two interest rate increases. The US Dollar Index, a gauge of the buck’s value against a basket of six currencies, climbs 0.08% and is back above 103.002, a headwind for the GBP/USD pair.

On the UK front, the S&P Global/CIPS Manufacturing PMI for June came at 46.5, above estimates of 46.2, but trailed May’s 47.1, flashing signs of an economic slowdown. Recession fears had increased in the UK, with the Bank of England expected to continue to tighten monetary conditions. Money market futures estimate the BoE would raise rates by at least 6%, representing the most aggressive tightening cycle among the majors.

Despite the Sterling could appreciate in the short term, recession risks increased, suggesting that despite higher rates, the GBP/USD could depreciate, as traders seeking safety would likely buy the US Dollar. The GBP/USD remains upward biased after failing to break above the 1.2700 figure.

If GBP/USD bears drag prices below the June 29 swing low, seen as intermediate support at 1.2590, that will pave the way for a test of 1.2500 and probably the 100-day EMA at 1.2428.