Better-than-expected UK PMI data boosted the pound, but expectations of an interest rate cut remained, causing the pound to fluctuate higher against the dollar.
2025-12-17 09:42:15
The pound continued its rebound against the dollar in early Asian trading on Wednesday, rising to around 1.3425. The main driver of the pound's strength was better-than-expected preliminary S&P Global PMI data, which eased market concerns about a slowdown in the UK economy.
Data shows that the UK's composite PMI came in at 52.1, significantly higher than the market expectation of 51.4 and also higher than the previous value of 51.2. Among them, the services PMI rose to 52.1, and the manufacturing PMI rebounded to 51.2, both of which are above the expansion/contraction threshold.
As a core pillar of the UK economy, the improvement in the service sector is seen as a positive signal by the market, providing temporary support for the pound. However, the upside potential of the pound remains significantly constrained by expectations regarding monetary policy.
The market widely expects the Bank of England (BoE) to cut interest rates by 25 basis points at its policy meeting on Thursday, lowering the benchmark rate to 3.75%. This expectation has kept investors cautious despite positive data, limiting the pound's continued strength.
Jefferies economist Modupe Adegbembo said: "We still believe that the Bank of England will cut rates faster than the market is currently pricing in, and expect the policy rate to fall to 3% by the end of 2026. This PMI data is not enough to change that assessment."
The Federal Reserve's stance is divided, but the dollar remains resilient. Regarding the dollar, Federal Reserve officials remain significantly divided on whether further policy easing is needed. Some policymakers expect only one rate cut in 2026, while others believe no further cuts are necessary. Market participants, however, tend to believe there may be two more rate cuts next year.
According to the CME FedWatch tool, federal funds futures pricing indicates that the market believes there is approximately a 75.6% probability that the Federal Reserve will maintain interest rates at its January meeting, a significant increase from a week ago. This change reflects that the US dollar still has some support in the short term and also puts indirect pressure on the British pound.
From a technical perspective, the GBP/USD pair is showing signs of a mild rebound in the short term: short-term support is in the 1.3360–1.3380 range; a break below this level could lead to a retest of 1.3300. Resistance is around 1.3450, with further resistance at the psychological level of 1.3500.
The exchange rate has temporarily stabilized above the short-term moving average, but the medium-term trend remains volatile, and momentum indicators do not show any clear signals of a one-sided breakout.
Editor's Note:
The improvement in UK PMI data provided a short-term respite for the pound, but it was insufficient to reverse expectations regarding the direction of monetary policy. With the Bank of England poised to cut interest rates and the Federal Reserve maintaining a cautious policy path, the pound is more likely to maintain a range-bound trading pattern against the dollar.
Unless subsequent data continues to confirm the resilience of the economy, this rebound is more likely to be a sentiment recovery than a trend reversal.
Data shows that the UK's composite PMI came in at 52.1, significantly higher than the market expectation of 51.4 and also higher than the previous value of 51.2. Among them, the services PMI rose to 52.1, and the manufacturing PMI rebounded to 51.2, both of which are above the expansion/contraction threshold.
As a core pillar of the UK economy, the improvement in the service sector is seen as a positive signal by the market, providing temporary support for the pound. However, the upside potential of the pound remains significantly constrained by expectations regarding monetary policy.
The market widely expects the Bank of England (BoE) to cut interest rates by 25 basis points at its policy meeting on Thursday, lowering the benchmark rate to 3.75%. This expectation has kept investors cautious despite positive data, limiting the pound's continued strength.
Jefferies economist Modupe Adegbembo said: "We still believe that the Bank of England will cut rates faster than the market is currently pricing in, and expect the policy rate to fall to 3% by the end of 2026. This PMI data is not enough to change that assessment."
The Federal Reserve's stance is divided, but the dollar remains resilient. Regarding the dollar, Federal Reserve officials remain significantly divided on whether further policy easing is needed. Some policymakers expect only one rate cut in 2026, while others believe no further cuts are necessary. Market participants, however, tend to believe there may be two more rate cuts next year.
According to the CME FedWatch tool, federal funds futures pricing indicates that the market believes there is approximately a 75.6% probability that the Federal Reserve will maintain interest rates at its January meeting, a significant increase from a week ago. This change reflects that the US dollar still has some support in the short term and also puts indirect pressure on the British pound.
From a technical perspective, the GBP/USD pair is showing signs of a mild rebound in the short term: short-term support is in the 1.3360–1.3380 range; a break below this level could lead to a retest of 1.3300. Resistance is around 1.3450, with further resistance at the psychological level of 1.3500.
The exchange rate has temporarily stabilized above the short-term moving average, but the medium-term trend remains volatile, and momentum indicators do not show any clear signals of a one-sided breakout.
Editor's Note:
The improvement in UK PMI data provided a short-term respite for the pound, but it was insufficient to reverse expectations regarding the direction of monetary policy. With the Bank of England poised to cut interest rates and the Federal Reserve maintaining a cautious policy path, the pound is more likely to maintain a range-bound trading pattern against the dollar.
Unless subsequent data continues to confirm the resilience of the economy, this rebound is more likely to be a sentiment recovery than a trend reversal.
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