- GBP/USD shows lackluster performance as investors wait for US/UK PMI.
- The Fed may again slow the pace of rate hikes to 25 bps at its February policy meeting.
- UK manufacturing PMI may adjust to 45.0, while services PMI remains stable at 49.9.
The GBP/USD pair is making a tumultuous move near 1.2380 as investors await the release of US and UK S&P PMI numbers. Cable is showing signs of reducing volatility as market sentiment is being cautiously captured.
S&P 500 futures are showing a small loss after a bullish Monday, indicating caution in bullish buying of risk-sensitive assets. Meanwhile, returns on U.S. Treasuries have fallen slightly as the Federal Reserve (Fed) is more likely to slow the pace of rate hikes at his February monetary policy meeting. Yields on 10-year US Treasurys fell to near 3.51%.
The US Dollar Index (DXY) recovered strongly after falling to near seven-month lows near 101.20 on Monday, but its upside was capped above 101.80.
US inflation is declining, confirmed by various catalysts. Retail demand is subdued, jobs are not being created at a healthy pace, economic activity is shrinking, and companies are offering low prices at the factory gates. This raises hopes that the Federal Reserve (Fed) will once again reduce rate hikes.
Fed Chairman Jerome Powell trimmed the rate hike range to 50 basis points (bps) at the December Monetary Policy Meeting after raising rates by 75 basis points (bps) four times in a row. The Fed is expected to raise interest rates by 25 bps ahead of him. A 25 bps rate hike is more than 98% likely, according to the CME FedWatch tool.
But before that, investors’ attention will remain focused on Tuesday’s release of US S&P PMI data. His PMI for manufacturing is seen lower at 46.1 from the previous release of 46.2, but his PMI for services may shrink to 44.5 against the previous figure of 44.7.
On the US front, provisional manufacturing PMI (Jan) is seen narrowing to 45.0 compared to its previous release of 45.3. Service PMI is stable at 49.9. Separately, Wednesday’s Producer Price Index (PPI) data for the UK remains to be watched.