• Pound Sterling holds onto gains against the US Dollar on Monday’s European session, extending the V-shape recovery from 1.2600 on Friday.
• The US Dollar faces a sell-off as the United States Institute of Supply Management (ISM) reported a weak set of Manufacturing PMI figures for February. The ISM reported a poor New Orders Index and signaled increased layoffs in the manufacturing sector, which indicates a weak economic outlook.
• This week, the US Dollar will be guided by the testimony of Fed Chair Jerome Powell before Congress and the labor market data for February. Powell may provide fresh guidance on the interest rate outlook.
• Meanwhile, the outlook of the United Kingdom economy improves as the S&P Global/CIPS reported an upbeat Manufacturing PMI for February. The Manufacturing PMI came in at 47.5, the highest since April 2023, beating expectations and the prior reading of 47.1. However, the index has remained below the 50.0 threshold in each of the past 19 months, which signals a contraction.
• In the Manufacturing PMI report, S&P Global reported that the New orders intake from the domestic and overseas economies has been hit hard due to client destocking, subdued market confidence, and financial pressures. The report also warned that factory owners faced challenging circumstances in February due to supply chain disruptions amid the Red Sea crisis. The supply issues have delayed raw material deliveries, eventually resulting in inflated input prices.
• Going forward, the Pound Sterling will be majorly guided by market expectations regarding the timing of rate cuts by the Bank of England. Investors see the BoE lowering its key interest rate from August. However, BoE policymakers may continue to lean towards maintaining interest rates at 5.25% until they get confident that inflation will return to the desired rate of 2%.