GBP/USD falls on growing BoE rate cut expectations

• GBP/USD falls after dovish signals from Bank of England officials, and traders point to a possible rate cut in August.
• Good US manufacturing data and a less dovish stance from the Federal Reserve boost the Dollar.
• The upcoming UK and US PMIs could further influence the currency pair.

The British pound lost ground against the US dollar and fell to its lowest level since November last year, as investors began to price in a more dovish Bank of England. The semi-empty economic agenda in the United Kingdom left GBP/USD traders adrift from the market mood and the dynamics linked to the Dollar. Therefore, the pair is trading at 1.2350, down 0.12%.

GBP/USD falls to 1.2350 amid speculation of faster rate cut by BoE

Last week, Bank of England Governor Andrew Baily said inflation is falling and could justify a rate cut. On Friday, BoE deputy governor Dave Ramsden sounded slightly dovish, saying he expects the data release to accentuate the slowdown in the economy.

Swap markets suggest the Bank of England could cut rates in August, with a 95.9% chance.

On the other hand, manufacturing activity in the United States (US) is gaining momentum, according to the Chicago Federal Reserve. The Chicago Fed National Activity Index (CFNAI) rose to 0.15 in March from 0.09 in February. The index's three-month moving average went from -0.28 in February to -0.19 in March.

This, along with the hawkish tone adopted by Federal Reserve Chair Jerome Powell, increased the odds of a less dovish Fed. Market participants expect fewer rate cuts than the projection in the Fed's March Summary of Economic Projections (SEP).

Data from the Chicago Board of Trader (CBOT) indicates that the Fed could begin to ease its policy until September 2024, a month later than the BoE. This would keep GBP/USD under downward pressure as the interest rate differential favors the Fed.

What awaits GBP/USD?

PMIs will be published on the UK economic agenda. In the US, Fed officials began their blackout period ahead of the May 1 meeting. However, S&P Global will release April PMIs and housing data.