- The UK budget announcement and the testimony of the US Federal Reserve Chairman are factors that will have a strong impact on the performance of the GBP/USD currency pair during today's session.
- Before that, the GBP/USD pair rebounded upwards towards the 1.2735 resistance level, its highest in a month, before settling around 1.2700 at the time of writing the analysis.
According to currency trading platforms, the US dollar was broadly softer after the much-anticipated business survey came in below expectations and hinted at a possible slowdown in the hot US growth rate. Recently, the pound rose a quarter percent against the dollar to 1.2735 after the US services PMI reading came in at 52.6 in February, down from 53.4 in January and below consensus expectations of 53.
According to the economic calendar data, the composite index pointed to growth in February for the 14th consecutive month after a reading of 49% in December 2022, the first contraction since May 2020. At the same time, the employment index contracted for the second time in three months, to 48%, down 2.5 percentage points from 50.5% in January. Moreover, these contractions point to a moderation in the pace of US economic growth and are a rare disappointment for investors who have become accustomed to the economy delivering positive surprise after positive surprise.
Obviously, the US dollar has benefited from these surprises, as they have led to a decline in expectations for the timing of the first US rate hike. Any hint of a turnaround in the data would suggest that this move is over, and that the possibility of building US rate cut bets is now the focus.
Moreover, this opens the door for further gains in the pound, which is likely to reach the top of the recent range. Although the report represents a slowdown in activity in the dominant services sector, it still points to an economy in growth mode. The new orders component of the report reached a reading of 56.1 in February, its strongest performance since August of last year and the second straight month of acceleration to start 2024. Furthermore, the business activity component reading was 57.2, reflecting the ability of service companies to meet demand, the strongest since August 2023.
Meanwhile, inflationary pressures continue to simmer, with the rise in costs faced by service-oriented companies slowing moderately to 58.6 after rising to 64.0 in January. Therefore, while the market will not have the new fuel needed to fall back on expectations of further US rate cuts, the economy is still far from demanding a US rate cut from the Fed.
Ultimately, this will limit USD weakness and cap the GBP before the December high of 1.2825.
GBPUSD Expectations and Analysis Today:
Based on the performance of the daily chart above, the GBP/USD currency pair is still on an upward trend. The 1.2775 resistance level will continue to support the bulls' control and thus prepare for stronger gains. Technically, the psychological resistance of 1.3000 may come back to the minds of investors if the bulls succeed in breaking through the 1.2830 resistance level. Moreover, this requires an improvement in sentiment from the UK budget announcement today and the Federal Reserve to abandon its hawkish tone. On the other hand, and over the same period, the current upward hopes of the GBP/USD currency pair will evaporate if the bears return the currency pair to the 1.2600 support level again.
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