GBP falls below 1.38, Fed minutes loom

The British pound has fallen for a second straight day. Currently, GDP/USD is trading at 1.3717, down 0.28% on the day. The pair is down about 1 percent since Monday and has dropped into 1.37-territory.

The pound is under pressure, and even a strong Services PMI was not enough to prevent losses on Wednesday. Service providers reported growth in March, with the PMI rising from 49.5 to 56.3. A reading over the 50-level indicates growth. The PMI reading was the highest in seven months, although it did miss the estimate of 56.8, which may have soured some investors. With the government gradually relaxing health restrictions, pent-up demand is now translating into economic activity and stronger business optimism.

Last week, Manufacturing PMI rose to 58.9, its highest level since 2011. Construction PMI will be released on Thursday (8:30 GMT), and expectations are for an acceleration to 55.0, up from 53.3 points. If the economy is improving, what’s wrong with the pound? One possible explanation focuses on the EU announcement of an improved vaccination outlook. This led to stronger demand for the EUR/GBP cross and sent the pound lower. According to this scenario, the pound’s current downswing should be temporary in nature.

Will FOMC minutes send a hawkish message?

Recent employment numbers are pointing to a rapidly improving labour market. Nonfarm payrolls blew the estimate of 652 thousand out of the water, with gain of 915 thousand. This was followed on Tuesday by JOLTS job openings, which improved from 6.92 million to 7.37 million, well above the forecast of 6.91 million. This points to the labor market creating jobs at a much faster pace than expected.

The Fed has repeatedly said that it would not raise rates until the labor market recovered, telling the markets not to expect any hikes prior to 2024. With that recovery looking like it could be ahead of schedule, will the Fed change its timeline for rate hikes? Investors will be looking for such clues in the FOMC minutes later today (18:00 GMT).

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GBP/USD Technical Analysis

• On the downside, GBP/USD is testing support at 1.3742. Below, there is support at 1.3650
• 1.3889 is the next resistance line, followed by resistance at 1.3944

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