Pound Sterling rises on steady UK PMI growth, Fed-BoE policy in focus

• The Pound Sterling climbs to near 1.2670 against the US Dollar as the UK Composite PMI showed a steady growth.
• This week, investors will focus on monetary policy decisions from the Fed and the BoE as well as UK employment and inflation data.
• Traders price in an interest-rate reduction from the Fed while the BoE is expected to leave them unchanged.

The Pound Sterling (GBP) jumps sharply to near 1.2670 against the US Dollar (USD) in Monday’s London session after the release of the flash United Kingdom (UK) S&P Global/ CIPS Purchasing Managers’ Index (PMI) data. The PMI report showed that the overall business activity expanded at a steady pace to 50.5. The impact of a surprise faster-than-expected decline in the manufacturing sector activity was offset by a robust expansion in the service sector output.

The Manufacturing PMI declined at a faster pace to 47.3 from 48.0 in November. Economists expected the economic data to have improved to 48.1. The Service sector activity expanded at a faster pace to 51.4, from the estimates of 51.0 and the former release of 50.8. Though the data showed that the overall growth was steady, survey respondents were concerned over the business outlook due to fragile consumer confidence, tighter corporate budgets, and cutbacks to non-essential spending. The report also showed the total staffing numbers fell for the third month in a row. Some firms also noted that forthcoming increases in employers’ National Insurance contributions had encouraged cutbacks to working hours and longer-term efforts to restructure workforces.

A recent survey by the UK Recruitment and Employment Confederation (REC) also showed that an increase in employers’ contribution to National Insurance (NI) from 13.8% to 15% has led to dissatisfaction among employers.

Meanwhile, investors also await the United States (US) flash PMI data for October, which will be published at 14:45 GMT. The report is expected to show a cooler growth in the overall business activity due to a slowdown in both the manufacturing and the services sector. Investors will look for cues about the impact of the election of Donald Trump as President on demand and inflation expectations.

Daily digest market movers: Pound Sterling outperforms US Dollar

• The Pound Sterling outperforms the US Dollar even though the latter rebounds, with the US Dollar Index (DXY) hovering around 107.00. Investors brace for a high level of volatility from the GBP/USD pair this week, as the Federal Reserve (Fed) and the Bank of England (BoE) are set for their last monetary policy meetings of the year on Wednesday and Thursday, respectively.
• Divergent moves are expected from both the central banks as the Fed is widely anticipated to cut its key borrowing rates by 25 basis points (bps) to 4.25%-4.50%, while the BoE is expected to leave them unchanged at 4.75%. Still, as the main interest-rate decisions from both the central banks have already been priced in by market participants, investors will be majorly focusing on the policy outlook for 2025.
• According to current market expectations, traders expect three interest rate cuts from both central banks in 2025.
• This week, the Pound Sterling will also be influenced by the United Kingdom (UK) employment data for the three months ending October and the Consumer Price Index (CPI) data for November, which will be released on Tuesday and Wednesday, respectively. Any sharp deviation in the labor market and inflation numbers from estimates could influence market speculation about the BoE’s interest rate action on Thursday and policy outlook expectations for 2025.

Technical Analysis: Pound Sterling stays below key EMAs

The Pound Sterling rises to near 1.2645 against the US Dollar on Monday after a three-day losing streak. The outlook of the GBP/USD pair remains bearish as all short-to-long Exponential Moving Averages (EMAs) are sloping lower.

Still, the upward-sloping trendline drawn from the October 2023 low around 1.2035 continues to provide support to Pound Sterling bulls near 1.2600.

The 14-day Relative Strength Index (RSI) hovers near 40.00. Should the RSI drop below 40.00, a bearish momentum will set off.

Looking down, the pair is expected to find a cushion near the psychological support of 1.2500. On the upside, the December 6 high of 1.2810 will act as key resistance.