The British pound has been experiencing upward momentum, reaching its strongest level since late October, trading near $1.33. This performance is attributed to a combination of factors, including positive revisions to the UK services PMI and a weakening US dollar in anticipation of a Federal Reserve rate cut. While the headline PMI figures indicate expansion, underlying data reveals some concerning trends regarding business activity and employment.
- The British pound extended gains towards $1.33, its strongest level since late October.
- November’s UK services PMI was revised up to 51.3 from 50.5.
- The composite PMI rose to 51.2 from 50.5.
- Business activity slowed, and employment fell at the fastest pace since February.
- Prices charged inflation eased to its lowest level since January 2021.
- The Bank of England is widely expected to deliver a 25-basis-point rate cut in December.
- US markets fully price in a third Fed rate cut in December, with at least two more reductions anticipated next year.
This suggests a short-term positive outlook for the pound. Upward revisions to the Services PMI indicate growth in a key sector of the UK economy. Simultaneously, expectations of rate cuts by the US Federal Reserve weaken the dollar, further bolstering the pound’s relative appeal. However, negative trends in business activity and employment, along with potential inflationary pressures, warrant caution. The Bank of England’s expected rate cut signals an attempt to stimulate the economy, but the decision to pause afterwards highlights concern over inflation re-acceleration, potentially limiting the pound’s long-term gains.