The GBP/USD pair has managed to stage a rebound after having declined below 1.2150 earlier in the session. With investors remaining cautious ahead of the US ISM Services PMI data, however, the pair finds it difficult to gather bullish momentum.
On Tuesday, the intense flight to safety helped the greenback outperform its rivals. The US Dollar Index (DXY) gained nearly 1% on a daily basis and snapped a four-day losing streak. Ahead of the ISM Services PMI data, however, DXY seems to have gone into a consolidation phase above 106.00, limiting GBP/USD‘s downside for the time being.
Investors expect the Prices Paid component of the ISM survey to rise to 81.6 in July from 80.1 in June. In case the survey reveals that price pressures remained uncomfortably high in the service sector, the dollar could regather its strength. On Tuesday, several Fed officials reiterated that they remain committed to bringing inflation down and markets could move away from pricing in a 50 basis points rate hike in September.
On the other hand, the sharp drop recorded in the Prices Paid component of the ISM’s Manufacturing PMI triggered a dollar selloff on Monday and a similar market reaction could be witnessed if there is an unexpected decline in service sector inflation.
Meanwhile, the data from the UK revealed that the business activity in the UK service sector expanded at its weakest pace in 17 months with the S&P Services PMI declining to 52.6 in July from 54.3 in June. This reading came in weaker than the market expectation and the flash estimate of 53.3.
Source– FxStreet
