Pound Sterling Slumps as UK PMI Falls; Market Eyes US Figures and BoE Policy Change
Pound Sterling lost considerable ground this week after UK preliminary PMI figures for April showed a surprise fall in business activity, led by a dramatic loss of strength in the services industry and major underlying weakness in manufacturing. The Composite PMI fell to 48.2, marking the first fall since October 2023, and causing worry over the general economic outlook. Increased recession concerns, muted domestic demand, and external uncertainties bore significantly on business optimism. In contrast, investor attention turns to forthcoming US PMI releases and potential Bank of England rate reduction in May as global inflation remains weak and wage growth slows, piling pressure on the Pound’s performance. KEY LOOKOUTS • Investors are increasingly pricing in a potential interest rate cut at the BoE’s May policy meeting due to weaker-than-expected inflation and wage growth data. • March retail sales figures, due Friday, will offer further insight into consumer spending trends and economic resilience amid growing contraction fears. • Market participants are closely watching the preliminary US PMI data for April, which could influence USD movement and cross-currency performance, including GBP/USD. • Increasing recession prospects, trade tensions, and defensive business attitudes are still pressurizing the UK economy and investors’ confidence in the Pound Sterling. Market participants are preparing themselves for a rocky trading week with several economic gauges and geopolitical events influencing mood. The Pound Sterling continues to face pressure in the wake of the sudden collapse in UK PMI numbers that indicated weakening business activity and an increase in recession fears. Investors now look to Friday’s UK Retail Sales report and the Bank of England’s next policy decision, with increasing anticipation of a May rate cut. On the other side of the Atlantic, the release of US flash PMI data for April is also under the spotlight, as it can shape the path of the US Dollar and general market dynamics. Amid lingering global uncertainty and cautious business outlooks, the Pound’s near-term performance hinges on upcoming economic cues and central bank actions. The Pound Sterling faces renewed pressure after UK PMI data signaled a contraction in business activity for April. Investors now await key economic data and the Bank of England’s next move, with rising expectations of a rate cut. Global uncertainty and cautious sentiment continue to shape market direction. • The UK’s Composite PMI dropped to 48.2 in April, marking the first decline in overall business activity since October 2023. • The Services PMI fell significantly to 48.9, below expectations and showing muted domestic demand. • The Manufacturing PMI dropped further to 44.0, marking ongoing difficulties in the sector. • Confidence in both services and manufacturing reached a two-and-a-half-year low due to increased global and domestic economic uncertainty. • Investors look for March UK Retail Sales, which is forecast to decline by 0.4% on a monthly basis, providing insight into consumer expenditure. • Soft inflation and wage growth figures have increased market expectations of a possible Bank of England rate reduction in May. • Focus also shifts to the next US flash PMI figures and global news, which may affect the Pound and overall market sentiment. Pound Sterling weakened after the release of dismal UK PMI figures for April, indicating that business activity in the UK had unexpectedly dipped. The services sector, which accounts for a significant proportion of the UK economy, experienced a sharp slowdown, with manufacturing also continuing to deteriorate. This is the first overall decrease in business activity since October 2023 and reflects increasing concern over the economic situation. Increasing global uncertainty and faltering domestic demand have further exacerbated the troubles for UK firms, and a decline in confidence among key industries has ensued. GBP/USD DAILY PRICE CHART CHART SOURCE: TradingView To accompany the PMI releases, other key economic data is being looked at by investors. Interest is being pinned on the release of UK retail sales later in the day, which will be further confirmation of consumer expenditure habits. Meanwhile, the likelihood of the Bank of England changing its interest rate strategy has been a subject of increasing interest, particularly with indications of slowing inflation and wage growth. In the meantime, events in the United States, such as new economic data and global trade negotiations, are also watched for their possible effects on world markets. TECHNICAL ANALYSIS GBP/USD currency pair indicated correction after hitting a multi-year high close to 1.3430, finding its way around the 1.3300 mark. The price is still supported by short- to long-term Exponential Moving Averages (EMAs), which are still trending higher, reflecting a bullish undertone despite recent setbacks. The Relative Strength Index (RSI), having reached overbought levels above 70, has now cooled down slightly, indicating a pause or minor correction in the trend. Major resistance is at the psychological 1.3500 level, while short-term support can be spotted near the April 3 high around 1.3200. FORECAST Although UK business has contracted lately, the longer-term prognosis for the Pound Sterling might receive some support if coming data surprises positively. Should Friday’s UK Retail Sales remain firm or the Bank of England refrain from caution when it comes to rate cuts, the Pound might regain some of its lost ground. Moreover, any indication of easing geopolitical tensions or better sentiment in the global economy might calm investor nerves and provide a tailwind for the Pound’s resurgence. The GBP/USD pair can test higher levels if global risk appetite increases and the US Dollar continues to weaken on softer US economic data. On the downside, continued weakness in UK economic indicators, such as another decline in consumer spending or deteriorating sentiment in the services sector, can bear more significantly on the Pound. If the Bank of England does proceed with an interest rate reduction in May or telegraphs dovish intent, it will tend to put greater selling pressure on GBP. Still, further and heightened escalation across global uncertainties like trade tensions and geopolitical uncertainty might prompt investors toward safe-haven currencies like the US Dollar at the expense of the Pound’s near-term performance.