Strong UK PMIs, BoE Pill’s Hawkishness Boost Sterling

The Pound Sterling rebounds from 1.2300 on robust increase in UK Services preliminary PMI for April. The UK preliminary Services PMI data surprisingly jumped to 54.9 from 53.1

Two BoE policymakers are lined up to speak as investors seek clues about the interest-rate outlook. The Pound Sterling (GBP) bounces back from 1.2300 in Tuesday’s early New York session as the S&P Global/CIPS has posted stronger-than-expected United Kingdom preliminary Services PMI data for April.

Surprisingly, the Services PMI jumped to 54.9 from the prior reading of 53.1. Investors forecasted the Services PMI to drop slightly to 53.0. The preliminary Manufacturing PMI, surprisingly contracted, remains below the 50.0 threshold that separates expansion from contraction after expanding in March. The factory PMI falls sharply to 48.3 from expectations and the prior reading of 50.3.

The agency reported that lower output levels in the manufacturing sector were often linked to weak market conditions and customer destocking in response to reduced demand. In April, new business volumes increased across the private sector as a whole. The growth rate was the strongest since May 2023, but the expansion was centered on the service economy as manufacturers saw a moderate downturn in order books.

The GBP/USD pair recovers as strong Services PMI has fuelled strength in the Pound Sterling. Also, the decline in the US Dollar (USD) has provided some support to the GBP/USD pair. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, edges down to 105.70 as the S&P Global has reported weak preliminary PMI data for August. Both Manucaturing and Services PMI remains sharply below the consensus.

However, the near-term outlook of the US Dollar remains upbeat on firm expectations that the Federal Reserve (Fed) will maintain interest rates at their current levels for longer. United States Consumer Price Index (CPI) has turned out hotter-than-expected in the first three months of the year and the county’s economic outlook is strong, suggesting that current interest rate framework is appropriate.

Meanwhile, investors will shift focus to the core Personal Consumption Expenditure Price Index (PCE) data for March, which will be published on Friday. The monthly core PCE Price Index is estimated to grow steadily by 0.3%. Annually, the underlying inflation data is expected to soften to 2.6% from 2.8% in February.