GBP/USD fluctuates around 1.2320 after weak US economic data, ahead of the Fed’s meeting

• GBP/USD remains firm ahead of the US Federal Reserve’s decision.
• A busy US economic calendar did little to help the US Dollar, which remained pressured amidst a risk aversion scenario.
• UK’s PMI improved but remained in contractionary territory for the sixth straight month, ahead of Thursday’s BoE meeting.

The GBP/USD snaps three days of consecutive losses and rises by a decent 0.22% on Wednesday amidst a risk-off impulse in the financial markets courtesy of a looming US Federal Reserve (Fed) decision. Except for the US Dollar (USD), most safe-haven peers remain on the front foot. Hence, the GBP/USD exchanges hands at around the 1.2320s area, slightly above the 20-day Exponential Moving Average (EMA).

Data from the United States is mainly ignored by traders eyeing the Fed

The Pound Sterling (GBP) holds to early gains following a tranche of US economic data release. The ADP National Employment Change report reports private hiring increased by 106K last month, below the 178K foreseen. Of late, the S&P Global Manufacturing PMI for January rose by 46.9 above 46.8 estimates, indicating that factory activity is beginning to improve, though at a slower pace.

A later report by the Institute for Supply Management (ISM) revealed that the PMI for January sank further, dropping to 47.4 from 48.4 in December for the third consecutive month and pushing the index to its lowest level since May 2020. At the same time, the JOLTs report showed that openings rose to 11.01 M in December, above estimates of 10.25 M.

Even though most of the US data released was worse than expected, the GBP/USD could not gain traction to test the daily high of 1.2345.

Across the pond, the UK economic docket presented the S&P Global/CIPS Manufacturing PMI for January, surprisingly above estimates of 46.7, came at 47 but remained at contractionary territory for a sixth consecutive month. The positive news of the report was that costs are slowing and supply chain pressures are easing.

In Brexit news, sources reported that the EU has reportedly accepted a UK customs proposal allowing goods to flow unchecked from Great Britain to Northern Ireland, while goods set for export into the Republic of Ireland would undergo checks in Northern Irish ports. There had been reports that both sides wanted a deal before April 25. It should be noted that despite Brexit headlines crossing the screens, the GBP barely reacted to that news.

Aside from this, the Bank of England is expected to raise rates on Thursday by 50 bps at its first monetary policy meeting of 2023. Therefore, GBP/USD price action would remain volatile, so traders be aware of the outcome of both monetary policy decisions.

GBP/USD Technical Analysis

Technically speaking, the GBP/USD has resumed its uptrend, at risk of central bank decisions, increasing the volatility from today until Friday of the current week. On the downside, the 20-day EMA at 1.2286 would be the first critical support, opening the door for further downside once cleared. The confluence of the 50 and 100-day EMAs, around 1.2139, would be difficult to surpass. On the other hand, the GBP/USD first resistance would be 1.2400, followed by the strong 1.2500 mark.