Daily digest market movers: Pound Sterling eyes more upside, US Dollar strives for support
- The Pound Sterling aims to extend upside above the immediate resistance of 1.2450 against the US Dollar due to multiple tailwinds. The uncertainty about when the Bank of England could start reducing interest rates and strong preliminary PMI data for April reported by S&P Global/CIPS on Tuesday have boosted demand for the Pound Sterling.
- Traders remain split between June and August policy meetings as the start of the easing cycle. "It is between June and August, we are leaning slightly towards August on the basis that one of the key things the Bank is looking at is services inflation," said James Smith, economist at ING Financial Markets. "If services inflation is a little bit stickier, I think that tilts the balance a little bit further towards August over June, but it's a pretty close call to be honest."
- Also, distinct commentaries from BoE policymakers keep the timing of the BoE’s first interest rate cut uncertain. Last week, BoE deputy governor Dave Ramsden said inflation could decline faster than the pace projected by the central bank in its latest forecasts. Ramsden remains confident that inflation will return to the 2% target in May and will remain there for the next three years.
- On the contrary, BoE policymaker Jonathan Haskel is worried about inflation remaining persistent due to tight labor market conditions. Haskel said, "The labour market is central to the inflation aspect." He added that he wants to see the job market easing further to be confident about inflation returning to the 2% target, reported Reuters.
- On the economic data front, the S&P Global/CIPS reported stronger-than-expected preliminary PMI data for April on Tuesday. Surprisingly, the Services PMI jumped to 54.9 from the prior reading of 53.1. Investors had forecasted the Services PMI to drop slightly to 53.0. On the contrary, the preliminary Manufacturing PMI surprisingly dropped below the 50.0 threshold that separates expansion from contraction after being in the expansion territory since January. The factory PMI fell sharply to 48.7 from expectations and the prior reading of 50.3.
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