GBP/USD experienced an upward trend during the North American session, driven by disappointing economic indicators from the United States (US), signaling a slowdown in business activity.

The US Federal Reserve (Fed) officials’ suggestions of halting the tightening cycle have reduced the likelihood of a rate hike at the upcoming June meeting. Currently, the GBP/USD pair is trading around the 1.2510s level after reaching a low of 1.2400.

GBP/USD Gains Momentum as Fed Considers Pausing Tightening, Wall Street Reacts to Decline in ISM Manufacturing PMI

Wall Street responded positively following the release of data from the Institute for Supply Management (ISM), indicating a consecutive seven-month decline in manufacturing activity.

The ISM Manufacturing Purchasing Managers’ Index (PMI) for May registered at 46.9, lower than April’s 47.1 and below the estimated 47. A reading below 50 is considered recessionary, with the index being influenced by the Fed’s aggressive tightening of 500 basis points and a significant drop in new orders.

The discouraging ISM data exerted significant downward pressure on the US Dollar (USD), leading to a sharp rise in GBP/USD from approximately 1.2470 to above 1.2500. The release of two additional US employment reports further fueled the bounce, causing the pair to recover from 1.2440 to its previous levels.

Regarding employment figures, the ADP National Employment Report revealed a robust increase of 278K private sector jobs in May, surpassing the estimated 170K. However, it fell short of the impressive 291K recorded in April. While this report indicated a tight labor market, it was further supported by the US unemployment claims.

Initial Jobless Claims for the week ending May 27 climbed by 232K, slightly below the estimated 235K but higher than the revised figure of 230K from the previous week.

Considering the latest data, there are expectations for remarks by Philadelphia Fed President Patrick Harker later in the day. Nevertheless, GBP/USD traders should bear in mind the recent statements made by Fed Governor Philip Jefferson, who advocated for pausing the rate hike in June, a sentiment echoed by Harker.

However, Harker added that incoming data could potentially alter his stance.

Across the Atlantic, the UK’s economic calendar revealed a significant decline in housing prices, marking the largest drop since 2009, which was attributed to higher interest rates implemented by the Bank of England (BoE).

The latest inflation report indicates signs of easing, but it remains four times higher than the BoE’s target. Following the release of the Consumer Price Index (CPI), investors have factored in the possibility of additional tightening measures by the BoE.


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