GBP/USD bulls eye a higher high ahead of US Services

 GBP/USD bulls stay in the game and have not thrown in the towel yet, testing the upside and scoring a high of 1.2425 so far after a day where the US Dollar fell swiftly in the US session. GBP/USD bulls capitalized on the move and the pair rallied from a low of 1.2274 to 1.2324. 

Monday's economic reports that showed US manufacturing activity in March slumped to its lowest level in nearly three years as new orders continued to contract. The Institute for Supply Management (ISM) reported that its Manufacturing PMI fell to 46.3 last month. This was the worst since May 2020, from 47.7 in February. 

Last week’s PCE data, the Federal Reserve´s preferred inflation measure, were mixed.  While headline and core both came in a tick lower than expected, super core accelerated for a second straight month to 4.63% YoY and is the highest since October.  ´´This is not the direction that the Fed desires and so we look for the hawkish tilt in Fed comments to continue,´´ analysts at Brown Brothers Harriman explained. 

With regards to the Federal Reserve, credit disintermediation is central to the market’s expectation that the FOMC will start cutting interest rates from September, analysts at ANZ Bank said. 

´´To validate that outlook, activity and credit data will need to start weakening precipitously in Q2. This week brings a full round of labour market data. It’s clearly early days in terms of banking turmoil impact, but the data will nonetheless have a significant impact on expectations for the May FOMC meeting. Currently, the market is 60% priced for a 25bp rate hike,´´ the analysts explained. 

Traders will now await the Services data tomorrow and Nonfarm Payrolls on Friday. ´´We look for the ISM Services index to retreat after showing signs of stabilization at a still-firm level of ~55 in Jan-Feb,´´ analysts at TD Securities said. 

US jobs eyed

Looking ahead, the focus this week will be on Friday's jobs report, although many markets will be closed for the Easter holiday.

´´US payrolls likely stayed firm at a still above-trend pace in March, though slowing from stronger prints in Jan-Feb,´´ the analysts at TD Securities explained. 

´´We also look for the Unemployment Rate to stay unchanged at 3.6%, and wage growth to print a firm 0.3% MoM.´´