Pound Strengthens on PMI Data
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In recent weeks, the performance of the foreign exchange market has captured significant attention, notably with the British pound taking the spotlightThe release of the UK PMI (Purchasing Managers' Index) data provided a temporary boost to the pound, as market participants observed its movement closelyNevertheless, looming ahead are pivotal interest rate decisions from both the Federal Reserve and the Bank of England, creating an environment reminiscent of a tactical showdown between two competing factionsThe outcome of this competition, driven by economic indicators and policy expectations, is poised to become the focal point for traders and analysts alike in the currency market.
The recent PMI data from the UK indicated a robust expansion within the service sector, driving the pound to briefly touch 1.2670 against the US dollar
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However, this positive sentiment was tempered by lackluster performance in manufacturingAs expectations build for upcoming interest rate announcements from the Federal Reserve and the Bank of England, traders are increasingly tuning into the broader implications for monetary policy and economic direction, particularly with forecasts for 2025 taking center stageThe market has delineated clear support and resistance levels, suggesting that volatility may be heightened in the near term.
As the PMI data poured in, it temporarily lifted the value of the pound, with GBP/USD peaking at 1.2670 during the trading session on December 16. This uptick was largely attributed to the service sector's impressive growth, which offset the downturn in manufacturing outputIn the grand scheme of things, market attention now orbits around the imminent interest rate decisions and the future path of policy, with the anticipated trajectory of rate cuts in 2025 drawing considerable interest
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The technical landscape indicates a solid support level at 1.2500 that traders are vigilantly watching.
Specifically, the PMI figures revealed a drop in the manufacturing sector, with November's PMI declining from 48.0 to 47.3, contrary to economists' expectations that it would improve to 48.1. In sharp contrast, the services PMI rose from a previous value of 50.8 to reach 51.4, surpassing forecastsWhile the data suggests overall growth remains steady, survey responses indicated rising concerns about the business landscape, primarily due to weak consumer confidence, tightening budgets, and cuts in discretionary spendingAdditionally, the report highlighted a decline in employment for the third consecutive month, with some firms attributing this to impending National Insurance contributions set to rise, leading to revisions in work hours and restructuring of staffing frameworks.
According to a recent survey from the Recruitment and Employment Confederation, the increase in National Insurance contributions from 13.8% to 15% has sparked dissatisfaction among employers, reflecting broader unease regarding the costs of doing business in the current economic climate.
Concurrently, market participants are also anticipating the upcoming release of the US December S&P Global Manufacturing PMI data, scheduled for December 16 at 22:45. Analysts project that this report will reveal a cooling growth pace in overall business activity, attributing the slowdown to deceleration in both manufacturing and service sectors while also eyeing inflation and demand forecasts closely.
Despite a rebound in the dollar and the US dollar index hovering around 107.00, the GBP/USD still shows resilience
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With the Federal Reserve and the Bank of England slated to announce their last interest rate decisions of the year on December 19, the pound could experience heightened fluctuations as traders position themselves ahead of these critical announcements.
The divergence in monetary policy between the two central banks has emerged as a pivotal point of focus: the Federal Reserve is expected to cut rates by 25 basis points, reducing them to a range of 4.25%-4.50%, while the Bank of England is likely to maintain its current rate at 4.75%. However, since the markets have largely priced in these decisions, additional attention is being directed toward forecasts for 2025. Currently, market projections suggest that both the Federal Reserve and the Bank of England may each execute three rate cuts in 2025.
Moreover, this week on Tuesday and Wednesday, the UK will release employment data for October and the consumer price index for November
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Significant deviations in labor market or inflation data may shift market expectations regarding the Bank of England’s rate decision on Thursday, thereby further influencing the anticipated policy trajectory for 2025.
On the technical analysis front, as of December 16, GBP/USD has seen a rebound to 1.2653, effectively halting its three-day downtrendHowever, with all short- to long-term moving averages pointing downward, the technical outlook for GBP/USD remains bearish; the upward trend line from the lows of October 2023 (approximately 1.2035) continues to provide support near the 1.2600 level.
The 14-day RSI has hovered around 40.00, and a dip below this level could trigger bearish momentumLooking downward, GBP/USD is expected to find support around the psychologically significant level of 1.2500. Conversely, the peak of 1.2810 on December 6 will be watched closely as a key resistance point.
As the British pound gains traction courtesy of the PMI data, the confrontation between bulls and bears ahead of the interest rate decision has entered a highly intense phase
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