- The GBP/USD is consolidated about 1,3410 on Thursday, retreating a maximum of three years while the merchants evaluate the PMI data and the broader macroeconomic risks.
- The US PMISs exceed expectations in services and manufacturing, reinforcing the cautious posture of the Fed on maintaining the stable rates.
- The PMI composed of the United Kingdom improves but remains below 50, with the manufacturing even in contraction despite a rebound in services.
The sterling pound (GBP) is sailing in an agitated price action against the US dollar (USD) on Thursday, staying above the 1,3400 psychological brand to quote about 1,3410 during the American session, while merchants digest the latest business activity data on both sides of the Atlantic. The pair shows signs of indecision after going back from a maximum of three years of 1,3468 reached on Wednesday.
On the other hand, the American dollar index (DXY), which tracks the value of the US dollar compared to the six main currencies, is showing a slight recovery from the minimum of two weeks, ending its three -day fall to quote just below the 100.00 brand.
In May, the US economy showed a stronger impulse, with the purchasing managers index (PMI) preliminary global S&P compound by increasing to 52.1 from 50.6 in April, pointing out a faster expansion rate. The manufacturing activity significantly improved, with the manufacturing PMI rising to 52.3 from 50.2, while the service PMI increased to 52.3 from 50.8. The generalized improvement indicates resilience in both sectors, since the demand remains constant, keeping the Federal Reserve (Fed) on a cautious path and reinforcing the case to maintain stable interest rates in the short term.
On the contrary, the PMI composed of Global S&P of the United Kingdom (UK) rose to 49.4 from 48.5 in April, indicating a slower rhythm of contraction in private sector activity. The services sector returned to expansion territory, with the PMI of services increasing to 50.2 from 49.0, while the manufacturing remained in contraction, since the manufacturing PMI fell to 45.1 from 45.4. The data offers a mixed vision of the United Kingdom economy, with the strength in the services by providing some support for sterling pound, but the underlying weakness in manufacturing still weighing on perspectives.
However, the optimistic business activity data in the US are attenuated by broader concerns about the fiscal perspective of the United States representatives approved a controversial tax and expenses package that is expected to expand the federal deficit in almost 3.8 billion dollars during the next decade. This follows Moody’s’s decision last week to reduce US credit rating to AA1, citing the increase in debt levels and a budget trajectory in deterioration.
In the United Kingdom, UBS predicts that the Bank of England (BOE) will reduce interest rates to 3.75% by the end of 2025 to address inflation and pressures of salary growth. Adding to complexity, the recent commercial agreement of the United Kingdom with the US has been criticized by the European Commission, which accuses the United Kingdom to potentially violate the norms of the World Trade Organization (WTO). The agreement, which includes tariff reductions in certain goods, could tighten the relationship of the United Kingdom with the European Union (EU) after Brexit and contribute to greater uncertainty in the market.
Market participants are now making their attention to the next data and comments publications of the central banks. The GFK consumer confidence index of the United Kingdom for May is scheduled for publication on Friday. In addition, April retail sales data will be observed closely in search of trends signals in consumer spending. In the US, speeches from Federal Reserve officials are anticipated, including the president of the Fed of Kansas City, Jeffrey Schmid, who will shed light on the policy perspectives of the Central Bank.
LIBRA ESTERLINA FAQS
The sterling pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most commercialized currency exchange unit (FX) in the world, representing 12% of all transactions, with an average of $ 630 billion a day, according to data from 2022. Its key commercial peers are GBP/USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The sterling pound is issued by the Bank of England (BOE).
The most important factor that influences the value of sterling pound is the monetary policy decided by the Bank of England. The Bank of England bases its decisions itself has achieved its main objective of “price stability”: a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, which makes access to credit for people and companies more expensive. This is generally positive for sterling pound, since higher interest rates make the United Kingdom a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing down. In this scenario, the Bank of England will consider lowering interest rates to reduce credit, so that companies will borrow more to invest in projects that generate growth.
Published data measure the health of the economy and can affect the value of sterling pound. Indicators such as GDP, manufacturing and services PMI and employment can influence the direction of the sterling pound.
Another important fact that is published and affects the pound sterling is the commercial balance. This indicator measures the difference between what a country earns with its exports and what you spend on imports during a given period. If a country produces highly demanded export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to buy those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
