The British Pound (GBP) has recovered from below the 200-Day Moving Average (200-DMA) against the US Dollar (USD) at 1.1938. However, economists at Société Générale are of the opinion that the GBP/USD pair is unlikely to see a sustainable rise anytime soon. This is due to the widening of the Federal Reserve (Fed) and Bank of England (BoE) rate differentials, which could potentially reach up to 100 basis points in the second quarter of the year.
The UK Purchasing Managers’ Index (PMI) for February is one of the key data releases to look out for tomorrow. However, the economists at Société Générale believe that even if the index shows a modest improvement to 49.2, it may not be enough to lift the GBP/USD pair. This is because investors are more likely to focus on the Federal Open Market Committee (FOMC) minutes and US Personal Consumption Expenditure (PCE) inflation.
The GBP/USD pair has been under pressure for the past few months, owing to the increasing rate differentials between the US and the UK. The US Federal Reserve has maintained its benchmark interest rate at near-zero levels since the start of the pandemic, while the Bank of England has been gradually increasing its rates in order to keep inflation in check. This has resulted in a widening of the rate differentials, which has weighed on the GBP/USD pair.
The UK PMI data could provide some respite to the GBP/USD pair, if it shows a modest improvement. However, the economists at Société Générale believe that the market is more likely to focus on the FOMC minutes and the US PCE inflation data. The FOMC minutes could provide an insight into the Fed’s outlook for the US economy, which could have a significant impact on the US Dollar. Similarly, the US PCE inflation data could provide an indication of the strength of the US economy, which could also affect the US Dollar.
In conclusion, the economists at Société Générale believe that the UK PMI data may not be enough to lift the GBP/USD pair, as investors are likely to focus more on the FOMC minutes and US PCE inflation data. The widening of the Fed and BoE rate differentials could also continue to weigh on the GBP/USD pair, as the US Dollar remains strong against other major currencies. Therefore, it is likely that the GBP/USD pair may remain range-bound in the near-term.
