President Donald Trump has called for immediate interest rate cuts, a move that sent ripples through the financial markets. His demand arrives at a time when the Federal Reserve remains committed to its independent approach of maintaining full employment and price stability. Amid these developments, the latest economic indicators present a mixed picture. The Composite Purchasing Managers' Index (PMI) expanded at a faster pace in January, rising to 50.9 from 50.4 in December, surpassing economists' expectations of stagnation at 50.0.
The robust growth in the Composite PMI is attributed to strong business activities in both the services and manufacturing sectors. This unexpected expansion has led to significant market reactions. The Pound Sterling strengthened against major currencies on Friday, buoyed by better-than-expected preliminary UK S&P Global/CIPS PMI data for January. It marked a fresh two-week high above 1.2400 against the US Dollar following President Trump's advocacy for immediate interest rate cuts.
The US Dollar Index (DXY) took a hit, slumping to near 107.60, its lowest level in over a month. This decline coincides with anticipations surrounding the Federal Reserve's upcoming monetary policy meeting slated for January 29. The CME FedWatch tool projects that the Fed will maintain interest rates within the current range of 4.25%-4.50%, despite external pressures for a rate reduction.
"With oil prices going down, I'll demand that interest rates drop immediately, and likewise they should be dropping all over the world," – Donald Trump
The preliminary S&P Global PMI data for January is scheduled for release at 14:45 GMT on Friday. The market anticipates this data eagerly as it provides insight into economic trends and potential movements in the financial landscape.
The Pound's upward trajectory was further supported by technical factors. The GBP/USD pair gained momentum after breaching the 20-day Exponential Moving Average (EMA), which trades around 1.2363. This technical breakout, coupled with the supportive UK PMI data, has fortified the Pound against its peers.
The Euro also experienced upward pressure due to upbeat PMI data from Germany and the Eurozone, adding further strength to the currency pair's movement. These developments underscore growing optimism about economic resilience in Europe amid broader global uncertainties.
Despite President Trump's push for rate cuts, the Federal Reserve has signaled its intent to require substantial evidence of economic weakness and subdued inflationary pressures before considering policy loosening. The Fed's steadfast approach emphasizes its dual mandate of fostering maximum employment and ensuring price stability.