The GBP/USD pair has extended its winning streak for the fifth consecutive session, trading around 1.3350 during the Asian hours on Tuesday and holding close to its 31-month high of 1.3359 reached on Monday.
The US Dollar (USD) is likely to face downward pressure amid rising expectations for further rate cuts by the Federal Reserve (Fed) in 2024. The CME FedWatch Tool indicates a 50% probability of a 75 basis point reduction, which would lower the Fed’s rate to a range of 4.0-4.25% by year-end.
Minneapolis Fed President Neel Kashkari stated on Monday that additional rate cuts are anticipated in 2024, although he expects these to be smaller than the recent cut from September. Chicago Fed President Austan Goolsbee echoed this sentiment, emphasizing the necessity for further rate reductions in the coming year.
Data Updates: Mixed Signals for Both Economies
Recent economic data reflects mixed signals. The S&P Global US Composite PMI for September grew at a slower rate, registering 54.4 compared to 54.6 in August. The Manufacturing PMI unexpectedly fell to 47.0, indicating contraction, while the Services PMI expanded more than expected, reaching 55.4.
In the UK, the preliminary Manufacturing PMI dropped to 51.5 in September, down from 52.5 in August, missing market expectations of 52.3. The Services PMI also declined to 52.8 from 53.7, falling short of the forecast of 53.5. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that the cooling of growth in both sectors should not be overly alarming.
UK Prime Minister Keir Starmer has raised concerns about the potential for “painful” economic reforms as inflation in the UK remains significantly higher than in other countries, suggesting a challenging economic outlook ahead.
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