GBP/USD falls after strong US ISM Manufacturing PMI data

• GBP/USD retreats amid strong US manufacturing activity and price pressures, fueling speculation about the persistence of Fed policy.
• The resilience of the US economy, highlighted by ISM data, contrasts with the tranquility of European markets due to the holiday closure.
• Upcoming UK PMI data could weigh on GBP/USD as market participants expect further deterioration.

The British pound plunges in the middle of the North American session, as strong US economic data could dent the Federal Reserve's intentions to cut rates. This supported the Dollar, while US Treasury yields soared, a headwind for the Pound. The GBP/USD pair is trading at 1.2587, down 0.57%.

The British pound remains afloat amid the strength of the US dollar and rising US yields.

The holiday in Europe keeps the financial markets closed. Across the Atlantic, data from the Institute for Supply Management (ISM) revealed that US business activity expanded in March for the first time since September 2022, suggesting the resilience of the economy. The manufacturing Purchasing Managers' Index (PMI) reached 50.3, beating the consensus of 48.4 and improving on February's 47.8. In addition, the report highlighted an increase in the prices paid index, which reached its highest point since August 2022. Given that the economy has performed better than expected, this resurgence of price pressures could make it difficult to tilt of the Federal Reserve to ease its monetary policy.

Previously, S&P Global had announced a slight adjustment to the March manufacturing PMI in the United States, placing it at 51.9 compared to the initial reading of 52.2, around 13:45 GMT.

Following the data, money market traders reduced the odds of a Federal Reserve rate cut in June from around 60% to 56.9%, according to data from CME's FedWatch tool.

Last week, Fed Chair Jerome Powell commented in a speech at the San Francisco Fed that the US central bank is in no rush to cut rates. Although last week's underlying personal consumption expenditure (PCE) price index was slightly lower, the Consumer Price Index (CPI) remains above the 3% threshold. That would keep Fed officials' hands tied and sticking to the higher-for-longer mantra.

On Tuesday, house prices, BoE consumer credit and the S&P Global manufacturing PMI will be released on the UK economic calendar.

GBP/USD Price Analysis: Technical Outlook

The GBP/USD exchange rate has broken the previous dynamic support level seen at the 200-day moving average (DMA) at 1.2857, opening the door for further losses. If the sellers push the exchange rate below 1.2550, the next level will be 1.2500. Otherwise, if the pair edges above the 200-DMA, we see 1.2600 as the next supply zone, before the 100-DMA at 1.2649.