GBP/USD has posted slight gains in the Wednesday session. Currently, GBP/USD is trading at 1.2731, up 0.25% on the day. On the fundamentals front, British Services PMI improved in May to 51.0, above the estimate of 50.6. In the U.S., ADP nonfarm payrolls posted a meager gain of 27 thousand, compared to the estimate of 185 thousand.
British PMIs are pointing to weakness in the U.K. economy. The services sector is barely showing expansion, and the manufacturing and services PMIs both came in under the 50-level, indicating contraction. Construction PMI fell to 48.6, its third decline in four months. This followed a manufacturing PMI of 49.4, marking the first contraction since July 2016. Manufacturing news from the U.S. also disappointed, as ISM Manufacturing PMI slowed to 52.1, down from 53.0 a month earlier. This was the PMI’s weakest reading since November 2018. Global demand has fallen off due to trade tensions, and unless this situation improves, manufacturing in the U.K and the U.S. could continue to head downwards.
Is the Federal Reserve planning a rate cut? Fed policymakers have tried to present an aura of neutrality regarding rate moves, but has taken a sharp U-turn this week in favor of an easing bias. On Tuesday, Fed chair Jerome Powell said that the Fed would “act as appropriate to sustain the expansion”, and analysts noted that he did not mention his “patient” approach to monetary policy, which has been a buzzword in Powell’s recent comments. This comes on the heels of comments from James Bullard, president of the St. Louis Fed. Bullard stated that the Fed might have to lower rates shortly due to low inflation and the ongoing trade war with China. Bullard warned that the Fed may have to deal with “an economy that is expected to grow more slowly going forward, with some risk that the slowdown could be sharper than expected due to ongoing global trade regime uncertainty“. Bullard added that the current benchmark rate, which is at a range of 2.25% to 2.50%, is too high for current economic conditions, and recommended lowering rates in order to stabilize the economy.
