Pound Sterling rebounds on strong UK Manufacturing PMI


  • The Pound Sterling rebounds, although easing UK inflation keeps its broader appeal weak.
  • Upbeat S&P Global/CIPS UK Manufacturing PMI supported the Pound Sterling.
  • UK’s shop price inflation grew 1.3% in March, the slowest pace since December 2021.

The Pound Sterling (GBP) finds support near a six-week low around 1.2540 in Tuesday’s early American session after the S&P Global/CIPS reported an upbeat Manufacturing PMI for March. The United Kingdom's Manufacturing PMI returns to expansion, landing above the 50.0 threshold that separates expansion from contraction at 50.3, higher than expectations and the former reading of 49.9. 

Rob Dobson, Director at S&P Global Market Intelligence, said: “The end of the first quarter saw UK manufacturing recover from its recent doldrums. Production and new orders returned to growth, albeit only hesitantly, following yearlong downturns, with the main thrust of the expansion coming from stronger domestic demand.

The broader appeal of the GBP/USD pair is still poor, mainly due to weak market sentiment. The near-term outlook of the Cable is downbeat as traders push back prospects for the Federal Reserve’s (Fed) first rate cut, which is expected in the June meeting, after keeping them higher for more than two years. The prospect of higher interest rates for longer than anticipated benefits the US Dollar and weighs on the pair.

The robust recovery in the United States manufacturing sector, which exhibits a strong economic outlook, forced traders to roll back their bets on rate cuts by June. Higher demand for the US manufacturing sector indicates solid household spending, allowing Fed policymakers to avoid rushing for interest rate cuts. Upbeat economic prospects buy significant time for the Fed to observe more inflation data before jumping on rate cuts. 

The US Dollar Index (DXY) prints a fresh four-month high slightly above 105.00 amid a cheerful safe-haven bid and good prospects for the US economy. More uncertainty is anticipated in global markets as the US Bureau of Labor Statistics (BLS) will report the Nonfarm Payrolls (NFP) data for March on Friday. 

Daily digest market movers: Pound Sterling finds support after UK factory data

  • The Pound Sterling seems vulnerable near more than six-week low around 1.2540 due to multiple headwinds. Slowing United Kingdom inflation and dismal market mood have weighed heavily on the Pound Sterling.
  • The British Retail Consortium (BRC) reported on Tuesday that the UK’s shop price inflation grew 1.3% in March, its slowest pace in more than two years. This marks a deceleration from the 2.5% increase seen in February. Shop price inflation fell due to softer prices of both food and non-food items. Non-food prices rose meagrely by 0.2% from the 1.3% rise seen a month earlier, while food prices grew by 3.7%, down from 5.0%.
  • BRC Chief Executive Helen Dickinson said fierce competition among retailers to bring prices down for their customers has eased shop price inflation to its lowest since December 2021. However, she warned that increasing cost pressures could put the progress in bringing down inflation at risk.
  • Lower shop price inflation could be a relief for Bank of England policymakers, providing them with ground for reducing interest rates after keeping them at high levels for more than two years. Currently, the market expects that the BoE will begin reducing interest rates from the June meeting.
  • The market sentiment has turned downbeat as traders have pared expectations for the Federal Reserve to cut interest rates in June. The prospects for a Fed rate cut that month eased after the United States Institute of Supply Management (ISM) reported stronger-than-expected Manufacturing PMI data for March. The Manufacturing PMI landed above the 50.0 threshold for the first time after 16 straight months of contraction. The US factory sector seems to be recovering from the high interest rate environment, which has weighed on activity for the last year and a half. 
  • Meanwhile, the US JOLTS Job Openings data for February remain steady. US employers posted 8.756 million, against expectations of 8.74 million, and the former release of 8.748 million.

Technical Analysis: Pound Sterling hovers around 200-DEMA

The Pound Sterling delivers a breakdown of the consolidation formed in the range between 1.2575 and 1.2675 last week. The Cable seems vulnerable as it trades near the 200-day Exponential Moving Average (EMA) at 1.2568, indicating weak demand in the longer term.

On a broader time frame, the horizontal support from December 8 low at 1.2500 could provide further cushion to the Pound Sterling. Meanwhile, the upside is expected to remain limited near an eight-month high of around 1.2900.

The 14-period Relative Strength Index (RSI) dips below 40.00. If it sustains below this level, bearish momentum will trigger.

 

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD retreats below 1.0650 after upbeat US data

EUR/USD retreats below 1.0650 after upbeat US data

EUR/USD lost its traction and declined below 1.0650 in the early American session on Monday. The upbeat Retail Sales data from the US helped the US Dollar regather its strength and caused the pair to turn south.

EUR/USD News

USD/JPY sits at multi-decade high near 154.00 as Japan's intervention risks loom

USD/JPY sits at multi-decade high near 154.00 as Japan's intervention risks loom

USD/JPY is sitting at multi-decade highs shy of 154.00 in the European session on Monday. The Japanese Yen continues to be undermined by the BoJ’s uncertain outlook about future rate hikes. Intervention fears and persistent geopolitical tensions could help limit losses for the safe-haven JPY. 

USD/JPY News

Gold continues to fluctuate at around $2,350

Gold continues to fluctuate at around $2,350

Following a bullish opening to the week, Gold went into a consolidation phase at around $2,350 on Monday. The benchmark 10-year US Treasury bond yield is up nearly 2% after strong US data, not allowing XAU/USD to push higher.

Gold News

XRP price recovers from nearly eleven month low of $0.41 as developers propose native lending on XRPLedger

XRP price recovers from nearly eleven month low of $0.41 as developers propose native lending on XRPLedger

Ripple price recovered from weekend low of $0.4188, surged past $0.50 on Monday. XRPLedger developers have proposed a Native Lending Protocol to help Ripple establish a foothold in DeFi, lending and borrowing for users. 

Read more

Week ahead: Data from the US, UK and Canada in focus

Week ahead: Data from the US, UK and Canada in focus

Similar to Fed and ECB pricing, swaps traders have scaled back bets of rate cuts for the Bank of England (BoE’s) Bank Rate to below 50bps for the year.

Read more

Forex MAJORS

Cryptocurrencies

Signatures