British Pound holds gains despite stronger US PMI, hawkish Fed stance
The GBP/USD pair posts modest gains near 1.3240 during the early European trading hours on Thursday. However, the potential upside for the major pair might be limited amid a widening policy gap between a hawkish Federal Reserve (Fed) and a more cautious Bank of England (BoE).
The British pound experienced modest gains against the US dollar in early European trading on Thursday, hovering around 1.3240. However, the upside potential for the pair may be constrained due to a widening gap between a hawkish Federal Reserve and a more cautious Bank of England. The US S&P Global Flash Purchasing Managers Index (PMI) showed a stronger-than-expected improvement in September, with the Composite PMI rising to 58.4, up from 56.0 in August.
The Manufacturing PMI also increased to 57.0, surpassing the 53.9 reading from the previous month. Federal Reserve Governor Michael Barr indicated that further policy adjustments may be necessary to control inflation. Fed officials, including Tom Barkin and Susan Collins, have backed recent interest rate hikes, citing persistent inflationary pressures.
Although stronger-than-expected US PMI data and hawkish remarks from Fed officials could support the US dollar, posing a headwind to the GBP/USD pair, the Bank of England's stance remains relatively more cautious. The Bank of England is anticipated to raise interest rates twice over the next six months as higher energy prices increase the risk of persistent inflation.
Despite this, the OECD argues that the UK central bank does not require further rate hikes, as policy is already tightened enough to control inflation.
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