GBP/USD: Sterling Under Pressure as UK Economy Contracts - EUROPE SAYS
Today the pair is moving against the pound. The reason is straightforward: on one side, UK data has disappointed; on the other, the US dollar is firmly holding strong positions. Preliminary UK PMI data for. . .
Today the pair is moving against the pound. The reason is straightforward: on one side, UK data has disappointed; on the other, the US dollar is firmly holding strong positions. Preliminary UK PMI data for June has been released. The composite index declined from 49. 7 to 49. 4. The key point – the reading remains below 50, meaning economic activity is not in expansion territory but in contraction. The services sector painted an even more concerning picture, falling from 49. 3 to 48. 7. This sector is one of the main pillars of the British economy. Manufacturing remains in expansion at 53. 1, though it too slipped from a prior reading of 53. 9. The picture from the US is entirely different. The composite PMI for June rose from 51. 5 to 52. 2. Manufacturing climbed from 55. 1 to 55. 7, beating the forecast of 54. 8. Services grew from 50. 7 to 51. 3. These figures point to steady expansion in the American economy. On the monetary policy front, the dollar also holds strong arguments. Following the June Federal Reserve meeting, markets interpreted the outcome as hawkish. New Chair Kevin Warsh identified price stability as the top priority. As a result, traders raised the probability of a December rate hike from 61% to 86. 1%, while the odds of a hike as early as the July meeting jumped from 8. 5% to 37. 4%. All of this significantly underpins demand for the dollar. There have also been developments in UK domestic politics. Following Keir Starmer’s resignation, Andy Burnham has emerged as the clear frontrunner for Labour Party leader, and markets have taken this transition relatively calmly. However, this positive signal is not enough to offset the broadly negative macroeconomic backdrop for the pound. Ongoing uncertainty surrounding Middle East negotiations continues to support dollar demand across the broader market. Conclusion: for GBP/USD, the primary direction today is down. Weak UK economic data and the Federal Reserve’s hawkish stance are jointly applying pressure on the pound. On Thursday, US PCE data is due – this is the next key event for this pair worth watching.