GBP/USD gathered bullish momentum and advanced to its highest level in nearly two weeks above 1.2770 on Wednesday. Although the pair staged a downward correction in the American session, it managed to post daily gains by stabilizing above 1.2700.
The PMI data from the UK showed that the private sector’s economic activity continued to expand at an accelerating pace in early January.
Commenting on the report, “the surprising strength of growth in January, which has exceeded forecasts, may deter the Bank of England (BoE) from cutting interest rates as soon as many are expecting, especially as supply disruptions in the Red Sea are reigniting inflation in the manufacturing sector,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence Supply.
Later in the day, the PMI data from the US painted a similar picture. S&P Global Composite PMI rose to 52.3 from 50.9 in December. As a result, the USD found support and capped GBP/USD’s upside.
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The US Bureau of Economic Analysis will release the first estimate of the real Gross Domestic Product (GDP) growth for the fourth quarter. Markets expect an annualized expansion of 2%, following the 4.9% growth recorded in the previous quarter.
According to the CME FedWatch Tool, markets are pricing in a 42% probability of a 25 basis points Federal Reserve rate cut in March.
A GDP print near or above the market consensus could cause investors to continue to refrain from betting on a rate cut in March and help the USD gather strength. On the other hand, a disappointing GDP reading could highlight the potential policy divergence between the BoE and the Fed, providing a near-term boost to GBP/USD.