GBP/USD rises to near 1.3450 ahead of UK PMI data

GBP/USD strengthens as the US Dollar continues to weaken on Moody’s downgrading of the US credit rating.
Fed policymakers partially blamed the US trade policy change for shaky consumer and corporate confidence.
The Pound Sterling receives support from stronger-than-expected UK inflation data released on Wednesday.

Akhtar Faruqui FXStreet

GBP/USD trades higher for the fourth successive day with trading around 1.3430 during the Asian hours on Thursday. The upside of the pair is attributed to the weaker US Dollar (USD), which continues to face challenges after Moody’s downgraded the US credit rating from Aaa to Aa1, following similar downgrades by Fitch Ratings in 2023 and Standard & Poor’s in 2011.

As per Moody’s, US federal debt is expected to climb to around 134% of GDP by 2035, up from 98% in 2023, with the budget deficit expected to widen to nearly 9% of GDP. This deterioration is attributed to rising debt-servicing costs, expanding entitlement programs, and falling tax revenues.

On Monday, Cleveland Fed President Beth Hammack and San Francisco Fed President Mary C. Daly both voiced rising concerns about the US economy during a panel event organized by the Federal Reserve Bank of Atlanta. Despite the fact that important economic indicators are still strong, both officials noted a decline in consumer and corporate confidence and partially blamed the change in opinion on US trade policies.

On Wednesday, the Pound Sterling (GBP) extended its gains on the release of the hotter-than-expected United Kingdom (UK) Consumer Price Index (CPI) data for April. The United Kingdom (UK) Office for National Statistics reported Consumer Price Index (CPI), which rose at a robust pace of 3.5% on year, compared to estimates of 3.3% and the March reading of 2.6%. This is the highest level seen since November 2023. Meanwhile, Month-on-month headline inflation rose strongly by 1.2%, compared to estimates of 1.1% and the former reading of 0.3%.

The stronger-than-expected UK data showed a surge in inflationary pressures, a major trigger that will discourage the Bank of England (BoE) from supporting an expansionary monetary policy stance further. Traders will likely observe S&P Global Purchasing Managers Index (PMI) data due on Thursday.

Economic Indicator

S&P Global Composite PMI

The Composite Purchasing Managers Index (PMI), released on a monthly basis by S&P Global, is a leading indicator gauging private-business activity in UK for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation.The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the UK private economy is generally expanding, a bullish sign for the Pound Sterling (GBP). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for GBP.

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