GBP/USD, the fourth most traded unit for foreign exchange in the world, held steady near 1.2900 on Monday as the new week commenced. This currency pair accounts for 12% of all the FX transactions. Overall, in 2022 it averaged a pretty amazing $630 billion in daily volume. Market participants have their eyes glued to economic data coming out from the UK and US. They’re monitoring major geopolitical developments that may change the currency’s direction. Yet looking at recent economic data, we see the opposite story unfolding between the manufacturing and services sectors. The price remains well above the 200-day Exponential Moving Average (EMA) at 1.2700.
Economic Indicators Present Mixed Signals
In March, the UK’s Manufacturing Purchasing Managers’ Index (PMI) fell to 44.6. This drop was an 18-month low, unambiguously signaling a contraction within the manufacturing sector. On the flip side, the Services PMI component surged past expectations, increasing to 53.2, its highest level in seven months. Sure, manufacturing is in recession, but the services sector has proven to be resilient. This jump provided relief and likely is driven by better consumer sentiment and more disposable spending.
Meanwhile, across the Atlantic, a deteriorating US Manufacturing PMI only added to the troubling indications of weakness. In March, it unexpectedly fell more than anticipated to a three-month low of 49.8. The steep fall has sent the index back into economic contraction territory. That concern becomes much more serious when considering that the ongoing tariff threats will mean a very different physical production outlook. At the same time, the US Services PMI beat expectations, jumping to 54.3, a three-month high in its own right. The better services index suggests firms are confident they’ll be able to pass on the cost increases they’re anticipating as a result of tariffs to their consumer base.
Geopolitical Tensions and Market Reactions
US President Donald Trump's renewed tariff threats are creating an atmosphere of uncertainty for investors, as markets brace for potential reciprocal measures. As a result of these advances, the GBP/USD index has remained beneath this essential 1.3000 line. Consequently, price action has put in place a technical roof at this important round number.
The market's focus is shifting towards upcoming reports and rumors surrounding Trump's anticipated announcement on reciprocal tariffs next week. Traders will be ready to pounce on any headlines that might change the trade landscape between the world’s largest economies. Business and consumer confidence surveys in both countries are being watched like hawks. They have to find their way though and forecast the future path of the US economy despite these geopolitical headwinds.
Factors Influencing Pound Sterling's Value
The Bank of England’s monetary policy decisions continue to be a key influence in shaping the Pound Sterling’s value. As policymakers fight to contain or grow the yuan, moves they make on interest rates and other monetary policy levers can have a profound impact on those currency valuations. Additionally, the UK's trade balance plays a crucial role in influencing the Pound's strength. In usual circumstances a positive net trade balance would support Sterling and a negative net trade balance would apply downward pressure.
Investors and traders are always looking for any change to the business outlook or consumer spending. These shifts can provide important clues about longer-term patterns of economic success to come. Similarly, significant indications of economic strength or weakness amid growing geopolitical turbulence would likely lead to currency valuation corrections.