UK domestic news boosted GBP/USD amidst the lack of high-impact economic data releases from the US.

GBPUSD News

The Pound Sterling showed impressive performance in Tuesday's trading (April 23), buoyed by the recovery in UK economic data. The GBP/USD pair rebounded by over 0.8% to reach highs around 1.2450, while GBP/JPY climbed back towards 193.00 and EUR/GBP retreated from its year-high levels.

Two pieces of good news emerged from the UK today: a rebound in service sector activity data and slightly hawkish remarks from the BoE Chief Economist. Both factors contributed to the rise of GBP/USD despite the absence of significant economic data releases from the US.

S&P Global reported that the UK services sector's Purchasing Managers' Index (PMI) increased from 53.1 to 54.9 in April 2024, surpassing consensus estimates and marking the highest level in eleven months.

The service sector holds significant weight in the UK economy, prompting the market to respond positively to this news, despite a slowdown in the UK manufacturing sector during the same period. The data confirms that the UK's economic recovery is ongoing, alleviating pressure on the Bank of England (BoE) to rush into interest rate cuts.

"UK private sector activity expanded for the sixth consecutive month in April as a robust recovery in service sector output helped to offset a marginal decline in manufacturing production," said S&P Global, producers of the PMI report.

Last week, the BoE Governor and a deputy stated that UK inflation is on track to reach the 2.0% target, reinforcing prospects for rate cuts starting in June. However, if UK inflation pressures align with economic recovery, the BoE may postpone rate cuts until August.

BoE Chief Economist Huw Pill also dismissed expectations of imminent rate cuts today, emphasizing that "the UK monetary policy outlook for the coming quarter has NOT substantially changed since early March" in his speech at the Chicago Booth in London.

Experts now hold differing views on the prospect of BoE rate cuts in June, with some expecting cuts then and others finding the case for reductions in August more convincing. All parties will continue to monitor upcoming data for clearer signals.

"UK PMIs underscore strong activity, and output prices continue to decline, even though input prices rose sharply. We maintain our view that the BoE is likely to cut only in August," says George Buckley, an economist at Nomura.

"The timing of the MPC's first rate cut has become relatively data-independent in our view. Or put another way, the bar to a cut is low. Small data misses and signs of modest extra inflation persistence won't knock the MPC off course. Accordingly, we continue to expect the MPC to cut Bank Rate in June, then again in September and December. Signs of stubborn services inflation could limit further cuts after that," he says.