- The US dollar fell against other major currencies after the ISM Services PMI survey showed a slowdown in momentum, raising hopes that the Federal Reserve will cut interest rates for the first time in June.
- As a result, the GBP/USD currency pair had a stronger chance of rebounding higher, with gains reaching the resistance level of 1.2670 and stabilizing around it at the time of writing the analysis.
Distinctly, the gains of the GBP/USD currency pair increased after the ISM reported that the US services Purchasing Managers' Index (PMI) reached 51.4% in March, significantly lower than the 52.6% recorded in February and below expectations for an increase to 52.7%. Commenting on this, Kevin Watts from forexbrokers.net said, "The dollar has become more flexible following the release of the services PMI, indicating renewed hopes for a rate cut in June." However, it was the paid services component - which provides a good indicator of inflationary pressures in the sector - that surprised, dropping from 58.6% to 53.4%. This was the lowest level for this sub-index in four years.
Meanwhile, the employment index contracted for the third time in four months, reaching 48.5%, an increase of 0.5 percentage points from 48% recorded in February. According to analysts, the general message from the report is that service sector inflation is likely to decline further rather than accelerate from here. Recently, these data contradicted other recent surveys showing an increase in activity. Earlier on the same day, the ADP employment report showed strong gains that pushed expectations for a Federal Reserve rate cut in June. Obviously, these ISM results reflect expectations once again, providing some disruption to the US dollar's price.
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According to analysts, "While US employment was virtually flat, the sharp decline in the paid price component from its January peak supports our conviction that some weak inflation rates are on the way. This should provide the entry point that policymakers are looking for to start cutting interest rates this summer. Therefore, we expect the Fed to err on the side of caution at the April - and possibly June - meetings, but the data still points to two or three cuts this year."
For his part, James Knightley, chief economist at ING Bank, warns that timely ISM reports have become less useful in signaling trends in official data. Consequently, this could limit any weakness in the dollar, as investors prefer to sit back and wait for the crucial details of the official releases.
GBPUSD Expectations and Analysis Today:
Despite the recent rebound, the price trend of the British pound against the US dollar GBP/USD is moving within its most prominent bearish channel on the daily chart. Technically, the trend will not be broken first without moving towards the resistance level of 1.2775 and then 1.2830, as the last level stimulates expectations for the future of the psychological resistance 1.3000. On the other hand, and over the same period, the support 1.2600 will remain the most important for the bears’ strong and continuous control over the trend.
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