GBP/USD Holds Above $1.2700 Despite Weak UK PMI Data, Focus Shifts to UK Retail Sales

Pound Sterling holds above $1.2700: The GBP/USD pair remains strong as traders reduce bets on a BoE rate cut in June, following the slower-than-expected inflation decline. The Pound benefits from these adjusted expectations.

UK economic outlook uncertain after weak PMI data: Preliminary PMI data for May indicated a decline in economic activity. The Composite PMI fell to 52.8 from 54.0, driven by a sharp drop in Services PMI to 52.9 from 54.7. However, the Manufacturing PMI rose to 51.3, surpassing the 50.0 threshold and indicating expansion.

Focus Turns to UK Retail Sales data: The upcoming Retail Sales data for April will be crucial in shaping expectations for BoE’s June meeting. Monthly Retail Sales are estimated to have declined by 0.4%, while annual Retail Sales are expected to contract by 0.2%.

US Jobless Claims Data: The Department of Labor reported that initial jobless claims fell to 215,000 last week, down from 223,000 the previous week and below the consensus estimate of 220,000. This stronger-than-expected decline reflects ongoing resilience in the labour market. Despite the drop in initial jobless claims, continuing claims edged higher to 1.794 million, up from 1.786 million in the previous week.

Fed’s sensitivity to labour market: The US dollar has been increasingly responsive to labour market data following recent comments from Fed Chairman Jerome Powell. Powell indicated that an unexpected weakening in the labour market is one of two scenarios that could lead to interest rate cuts this year. The latest jobless claims data suggests ongoing strength, potentially delaying any rate cuts and supporting the US dollar in the near term.

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