- The data revealed a further contraction in the US manufacturing sector.
- Traders are pricing in a 59.1% chance of a Fed rate cut in September.
- Surveys showed a drop in British sales in May.
The GBP/USD outlook shows solid bullish momentum as the dollar trades near multi-month lows amid fresh signs of economic weakness. However, the pound retreated slightly amid signs of weaker UK consumer spending in May.
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The dollar fell on Monday after data from the Institute for Supply and Management revealed further contraction in the manufacturing sector. The ISM PMI fell from 49.2 in April to 48.7 in May, showing the impact of high borrowing costs. This was the second month of contraction and could put pressure on the Fed to start cutting interest rates. As a result, traders are pricing in a 59.1% chance of a cut in September, up from 55% before the report. Moreover, they expect total reductions of 41 basis points in 2024.
That followed Friday’s inflation report, which showed a slight easing. If this trend continues, there will be a higher chance that the Fed will implement two rate cuts this year. The next big test will come on Friday when the US releases its monthly jobs report. Policymakers will be paying close attention to see whether or not the crack seen in the labor market last month continues.
Meanwhile, research by Barclays and the British Retail Consortium in Great Britain showed a drop in British sales in May. The fall was due to the effects of wet weather across Britain.
GBP/USD key events today
GBP/USD technical outlook: Bears refuse to break above resistance at 1.2800
On the technical side, the GBP/USD price broke the 1.2800 resistance level before pulling back below. This is a sign that the price has been rejected above 1.2800, and the bears could try to take over.
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Earlier, the price traded in a solid bullish trend that paused at 1.2800. At this point, the bears have taken a breakout below the bullish trend line and the 30-SMA support line, with the intention of reversing the trend. However, they could not go below the 1.2700 support level to make a lower low.
This allowed the bulls to try again to break above 1.2800. However, the RSI has made a slight bearish divergence, indicating weaker bullish momentum. If this plays out, the bears could revisit the 1.2700 support level.
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