Insights 
VT 
The Pound Sterling is under pressure against the US Dollar, hovering near 1.3330, with the US Dollar recovering following a stronger-than-expected ISM Services PMI report. As the Federal Reserve is anticipated to keep interest rates constant, the Bank of England is likely to reduce rates by 25 basis points.
The ISM Services PMI for April reached 51.6, surpassing expectations of 50.6 and the previous month’s 50.8. The New Orders Index also showed improvement, growing to 52.3 from the previous 50.4.
Fed Policy Expectations
The Federal Reserve is expected to announce its monetary policy decision, with a steady stance on interest rates anticipated. Ahead, adjustments could be triggered by any cracks in the labour market and broader economic conditions, though recent employment data remains positive.
US inflation expectations and rising input costs are influencing the Fed’s decision on rate adjustments. At the same time, President Trump has urged the Fed to lower rates, citing affordable gas and energy prices among other factors.
Pound Sterling displays mixed performance amidst a holiday in UK markets, with the BoE poised to make a rate decision. The global backdrop is affected by ongoing US-China trade tension, with no short-term resolution in sight.
Sterling continues to tread water, with softness exacerbated by growing divergence in rate trajectories between the UK and the US. Markets have begun to price in a rate cut from the Bank of England, which—if confirmed in the weeks ahead—would only deepen the pressure on GBP, particularly against a firmer Dollar backdrop. This isn’t just a short blip. We see a more prolonged repricing risk, especially as UK economic momentum shows signs of stalling, weighed down by sluggish wage growth and still-persistent inflation uncertainty.
Taking a closer look at the ISM print from the US, it’s not just the headline figure at 51.6 that matters—it’s the internal components that add weight. A steady pickup in New Orders hints at expanding demand, while upward trends in prices paid suggest that cost pressures haven’t yet fully eased. Together, these data points strengthen the Fed’s case for patience. With services activity firming and no clear signs of job market deterioration, there’s very little incentive for the Fed to deliver the cuts that many had priced in earlier this year.
Trump’s recent remarks calling for rate cuts may grab headlines but they lack any tangible influence on current policy direction. The Fed remains committed to a data-driven approach, and the inflation trajectory offers no pressing reason to pivot. If anything, robust services figures and persistent cost growth point in the other direction. And so, Dollar strength is currently rooted in supportive fundamentals—not political appeals.
Uk Economic Outlook
Meanwhile, the UK finds itself in something of a tightening corner. With a muted domestic demand outlook, sluggish industrial production data, and limited fiscal firepower, the BoE’s path appears constrained. Bailey and colleagues may still trim rates this month, especially if they place more weight on flagging retail and contracting small-business sentiment. Market-implied pricing has certainly leaned that way.
As for volatility, it’s likely to rise over the next fortnight. The divergence in rate expectations between the Fed and the BoE is laying the groundwork for broader spreads in interest rate differentials, which can create sharp moves in cable. For those of us trading rate-sensitive instruments or structuring trades that hinge on implied rate paths, it becomes necessary to monitor not only official statements but also the second-tier data releases—especially PMIs and wage trends.
We’ve also seen that geopolitical friction, most notably the unresolved strains in US-China trade tensions, continues to weigh on risk appetite broadly. While not new, this backdrop reinforces the flight-to-quality narrative which keeps the Dollar well-bid during bouts of uncertainty. This leaves Sterling more exposed, as it lacks the balance sheet strength or reserve currency status to attract safe-haven interest.
Positioning data suggests that longer-term speculators have started trimming long positions on GBP, reflecting both rate divergence and a more cautious stance on UK assets. This shift in sentiment could accelerate if market confidence deteriorates further or if forward guidance from the BoE strikes a more dovish tone than currently expected.
In the near term, there’s limited upside for Sterling barring any positive surprise out of the UK labour market or an unexpectedly hawkish tilt from the BoE. For now, the path of least resistance remains biased towards a firmer Dollar and a lower cable, particularly below the 1.3300 threshold—a level that could act more like a magnet if upcoming GDP and CPI figures underwhelm.
We are monitoring cross-asset correlation closely, particularly the behaviour of UK short-term interest rate futures. The flattening observed across the SONIA curve reflects growing conviction in a BoE cut cycle rather than a one-off move. This can influence hedging behaviour, liquidity provisioning, and tactical positioning across derivatives.
It would be prudent to re-evaluate exposure to GBP-denominated rate products over the coming sessions, especially ahead of any surprise inflation revisions or unexpected shifts in fiscal rhetoric. Even moderate changes in expectations here can alter repo dynamics and spill into swap pricing fairly quickly.
As the upcoming BoE decision approaches, markets are sharpening focus on vote splits and forward guidance tone, not just the raw rate adjustment. Divergences between dovish voters and hold-outs offer clues about policy inertia and potential tilt in following meetings.
We lean towards continuing close observation of core inflation metrics, service-sector growth, and any dislocation in liquidity measures—these will offer a cleaner signal on whether the decoupling between UK and US policy stances is growing faster than anticipated.
