GBP/USD Remains Defensive as Market Awaits Key Economic Data

The GBP/USD pair finds itself on the defensive below the mid-1.2200s as the Asian trading session kicks off on Monday. Market participants are keeping a close eye on upcoming economic data releases, with the UK’s Gross Domestic Product (GDP) for the second quarter and the US Core Personal Consumption Expenditure (PCE) Price Index data slated for release later in the week. As of now, the major currency pair is hovering near 1.2242, registering a modest 0.02% gain for the day.

The recent hawkish rhetoric from Federal Reserve (Fed) officials has lent support to the US Dollar (USD) against the British Pound (GBP). Presidents of the Fed Banks of Boston and San Francisco, Susan Collins and Mary Daly, have underscored the importance of further rate hikes despite signs of cooling inflation. This stance could potentially act as a headwind for the GBP/USD pair.

Pound Sterling (GBP) has been enduring a three-day losing streak, driven by growing uncertainty surrounding the UK’s economic prospects. S&P Global recently reported that UK Services PMI contracted for the second consecutive time, indicating a downturn in the nation’s services sector. Bank of England (BoE) policymakers have shifted their focus to the UK’s economic outlook in the face of persistent inflationary pressures.

The GBP/USD pair faced significant pressure following an unexpected pause in the BoE’s policy-tightening measures last week. This sudden deviation from expectations, where an interest rate increase was anticipated, raised concerns about potential economic slowdown in the UK.

Uncertainty over the interest rate outlook has added to the GBP’s woes, exacerbated by the upcoming general elections. UK Prime Minister Rishi Sunak has pledged to reduce inflation to 5.3% by year-end, but the BoE’s rate pause suggests challenges in fulfilling this promise. The UK economy has already felt the impact of higher interest rates, with both manufacturing and services activities showing signs of contraction.

In this climate of uncertainty, the GBP/USD pair faces headwinds, and investors will be closely monitoring key economic data releases to gauge the future direction of this currency pair. The upcoming GDP data for the UK and the Core PCE Price Index for the US could provide crucial insights into the economic health of both nations and impact currency markets accordingly.