Pound Sterling Plunges as UK Manufacturing Slumps and Fed Hints at Fewer Cuts

The British Pound Sterling (GBP) plummeted against the US Dollar (USD) on Thursday, hitting an eight-month low near 1.2440. At the time of writing, the GBP/USD pair is down -1.01%; trading at 1.238. This sharp decline was driven by a confluence of factors:

Weakening UK Manufacturing: The final S&P Global/CIPS Manufacturing Purchasing Managers’ Index (PMI) for December contracted sharply to 47.0, significantly worse than the preliminary reading of 47.3. This widespread downturn, impacting consumer, intermediate, and investment goods, reflects declining business confidence amidst the UK government’s policy changes and rising costs.

Diminishing Fed Cut Expectations: The US Dollar strengthened significantly, boosting the USD/GBP pair. Market expectations for further interest rate cuts by the Federal Reserve (Fed) have been tempered, as the Fed signals a less aggressive easing path this year. This shift in sentiment stems from the belief that the US economy remains resilient, with inflation remaining a concern.

BoE Rate Cut Path Under Scrutiny

While the Bank of England has already reduced interest rates, the pace of cuts is expected to slow down. Analysts at Goldman Sachs predict a more gradual path, with the BoE rate potentially reaching 3.75% by year-end. This shift in the BoE’s monetary policy stance also contributes to the Pound’s weakness.

Technical Factors: Bearish Dominance

Technically, the GBP/USD pair has broken below key support levels, including the 1.2500 psychological mark and the upward-sloping trendline from the October 2023 low. Key technical indicators, such as the Relative Strength Index (RSI) and moving averages, point to a strong bearish trend.