The Pound Sterling (GBP) rose to around 1.2670 against the US Dollar (USD) in Monday’s London session following the release of the UK S&P Global/CIPS Purchasing Managers’ Index (PMI) data. The report revealed that overall business activity expanded at a steady pace, coming in at 50.5. A sharper-than-expected decline in manufacturing sector activity was offset by stronger growth in the service sector.
The Manufacturing PMI fell to 47.3 from 48.0 in November, while expectations were for an improvement to 48.1. In contrast, the Service sector PMI rose to 51.4 from the prior reading of 50.8, surpassing expectations of 51.0. Though the PMI data showed overall steady growth, survey respondents expressed concerns over weak consumer confidence, tighter corporate budgets, and reductions in non-essential spending. Total staffing numbers fell for the third consecutive month, with some firms noting that upcoming increases in employers’ National Insurance contributions have led to cutbacks in working hours and efforts to restructure workforces.
A recent survey by the UK Recruitment and Employment Confederation (REC) highlighted dissatisfaction among employers due to the rise in National Insurance contributions, which increased from 13.8% to 15%.
Fed-BoE Policy Decisions in Focus
The Pound Sterling has outperformed the US Dollar, which has traded subdued with the US Dollar Index (DXY) hovering around 107.00. Investors are gearing up for a week of heightened volatility in the GBP/USD pair as both the Federal Reserve (Fed) and the Bank of England (BoE) hold their final monetary policy meetings of the year.
The Fed is widely expected to cut its key borrowing rates by 25 basis points (bps) to 4.25%-4.50%, while the BoE is anticipated to hold rates steady at 4.75%. Although these decisions have largely been priced in by the markets, attention will shift to the policy outlook for 2025. Traders currently expect both central banks to implement about three rate cuts in 2025.
Additionally, this week, the Pound Sterling will be influenced by UK employment data for the three months ending in October and the Consumer Price Index (CPI) data for November, due on Tuesday and Wednesday, respectively. Any significant deviation from expectations in these labor market and inflation figures could impact market expectations for the BoE’s policy stance on Thursday and its 2025 outlook.
Technical Analysis: GBP/USD Remains Below Key EMAs
The Pound Sterling rose to around 1.2645 against the US Dollar after a three-day losing streak. However, the overall outlook remains bearish, as all short-to-long-term Exponential Moving Averages (EMAs) are sloping downward.
The upward trendline from October 2023 lows around 1.2035 continues to provide support near the 1.2600 level. The 14-day Relative Strength Index (RSI) hovers around 40.00. A drop below this level could signal further bearish momentum.
Key support levels are expected near 1.2500, while resistance remains around 1.2810, the December 6 high.