Sterling Reaping Fruit of Upbeat UK Data

The Pound Sterling has reacted positively to the strong UK Manufacturing PMI, which showed a 1.3% increase in March, the slowest pace since December 2021. The UK’s Manufacturing PMI landed above the 50.0 threshold, marking expansion from contraction at 50.3, higher than expectations and the former reading of 49.9. The broader appeal of the GBP/USD pair is still weak, mainly due to weak market sentiment. The pair is trading at 1.25730, up +0.18% at the time of writing.

The near-term outlook of the Cable is downbeat as traders push back prospects for the Federal Reserve’s first rate cut, which is expected in the June meeting. The prospect of higher interest rates for longer than anticipated benefits the US Dollar and weighs on the pair. The robust recovery in the United States manufacturing sector, which exhibits a strong economic outlook, forced traders to roll back their bets on rate cuts by June. Higher demand for the US manufacturing sector indicates solid household spending, allowing Fed policymakers to avoid rushing for interest rate cuts.

The US Dollar Index (DXY) prints a fresh four-month high slightly above 105.00 amid a cheerful safe-haven bid and good prospects for the US economy. More uncertainty is anticipated in global markets as the US Bureau of Labour Statistics (BLS) will report the Nonfarm Payrolls (NFP) data for March on Friday.

The Pound Sterling seems vulnerable near more than six-week low around 1.2540 due to multiple headwinds. Slowing UK inflation and dismal market mood have weighed heavily on the Pound Sterling. The British Retail Consortium (BRC) reported that the UK’s shop price inflation grew 1.3% in March, its slowest pace in more than two years. Shop price inflation fell due to softer prices of both food and non-food items.

Lower shop price inflation could be a relief for Bank of England policymakers, providing them with ground for reducing interest rates after keeping them at high levels for more than two years. Currently, the market expects that the BoE will begin reducing interest rates from the June meeting.

Technical analysis shows that the Pound Sterling hovers around the 200-day Exponential Moving Average (EMA) at 1.2568, indicating weak demand in the longer term. On a broader timeframe, the horizontal support from the December 8 low at 1.2500 could provide further cushion to the Pound Sterling. The upside is expected to remain limited near an eight-month high of around 1.2900.

Meanwhile, the US JOLTS Job Openings data for February remain steady. US employers posted 8.756 million, against expectations of 8.74 million, and the former release of 8.748 million.