Insights 
VT 
The GBP/USD is stabilising around 1.3410 on Thursday after a three-year high, affected by mixed PMI data from the US and UK. The pair shows uncertainty following a retreat from Wednesday’s peak of 1.3468.
The US Dollar Index is recovering slightly after a two-week low, halting a three-day decline. In May, the US economy saw a rise in the S&P Global Flash Composite PMI to 52.1, with boosts in both manufacturing and services sectors.
Uk Economic Challenges
In contrast, the UK’s Composite PMI increased to 49.4, indicating slower contraction, with services expanding but manufacturing lagging. These mixed signals reflect challenges for the UK economy, especially in manufacturing.
Concerns about the US fiscal outlook persist amid new legislative packages and a credit rating downgrade by Moody’s. In the UK, UBS predicts the Bank of England will cut interest rates by 2025 to address economic pressures, while trade issues with the EU add to market uncertainty.
Upcoming UK data on consumer confidence and retail sales, alongside US central bank commentary, are under scrutiny. The GBP’s value is influenced by BoE decisions and key economic indicators, impacting its major trading pairs.
Thursday has seen the pound-to-dollar pair settling into a narrower range around the 1.3410 level, following a tempered pullback from the Wednesday top at 1.3468. That drop was brief but noteworthy, driven partly by differing data releases from both sides of the Atlantic. For those focused on the medium-term, there’s a clear shift in momentum that bears tracking.
From the American side, improvements in both services and manufacturing, as captured by the S&P Global Flash Composite PMI jumping to 52.1 in May, have yielded some mild support for the dollar. Although a three-day losing streak had dented sentiment, the dollar’s recent bounce from a two-week low suggests some resilience among dollar bulls, albeit softer than previous quarters. More broadly, this PMI uptick gives us our first reliable hint that the broader US economy continues to digest high interest rates with less disruption than many expected.
Contrast that with the UK, where the latest figures show the Composite PMI increasing to 49.4. While still beneath the neutral 50 mark—implying overall economic contraction—the modest gain surprised some. A closer look reveals that services continue to keep the economy afloat, while manufacturing remains stuck in contraction. These readings aren’t difficult to explain when measured against the backdrop of export delays, skills shortages, and persistent inflation in core input prices.
Markets are also dealing with fiscal tensions in Washington. The threat posed by large spending packages and Moody’s warning shot in the form of a US credit rating downgrade has not gone unnoticed. It hasn’t produced overt panic, but it does raise the risk of long-term US yield instability. Equities have shown signs of absorbing this uncertainty with caution, while futures pricing for Fed cuts remains largely intact for late 2024.
Uk Trade And Policy Impacts
On this side of the Atlantic, UBS’s forecast of rate cuts by the Bank of England in 2025 reflects growing concern that the current monetary stance may be holding back growth more than it is helping with inflation. It’s worth noting that EU-UK trade friction continues to weigh on sentiment. While seldom in the headlines these days, it quietly dampens investment appetite and export potential.
In the weeks ahead, retail figures and consumer confidence data from the UK are expected to offer more clarity. Confidence has remained fragile and has periodically undermined hopes for stronger domestic demand. If retail sales show contraction or stagnation, that would make a firm case for policymakers to rethink forward guidance.
Meanwhile, across the Atlantic, comments from Federal Reserve members are likely to be watched with renewed urgency. Recently, statements from voting committee members have leaned toward a data-dependent posture, but the market remains sensitive to any shift in tone. Should the Fed suggest fewer rate cuts or show concern about inflation persistence, dollar strength could return quickly.
As for the sharp traders among us, this is not a time for complacency. The pound has been reacting more to relative policy expectations, and less to risk sentiment. Cable’s dips have been bought quickly, while rallies remain vulnerable to even modest data misses. That tells us the trading range remains narrow but reactive.
We’re monitoring not only the scheduled data, but also unscheduled comments from central bankers and political headlines, particularly around spending plans and budget revisions. Currently, pricing behaviour is tighter and more news-sensitive, so risk-reward setups can shift over the course of single sessions. No room for hesitation; precision matters.
