British pound eyes US manufacturing data

The British pound has stabilized on Friday, after declining more than 1% a day earlier. In the European session, GBP/USD is currently trading at 1.2406, up 0.16% on the day.

The US economy is in solid shape, so much so that the Federal Reserve has lowered its rate cut projection for 2025 to just two rate cuts, compared to four rate cuts in the September forecast. The drver of the economy has been services activity, as the manufacturing sector remains in contraction.

US ISM Manufacturing PMI expected to contract

The week wraps up with US ISM Manufacturing PMI for December. The market estimate stands at 48.4, unchanged from the November reading. This follows the S&P Manufacturing PMI on Thursday, which eased  to 49.4, down slightly from 49.7 in November. This was higher than the market estimate of 48.3 but still pointed to contraction.

In the UK, manufacturing is also struggling. The market estimate for December stands at 47.3, following a reading of 47.0 in November, which missed expectations and was the lowest level in 11 months. Manufacturers’ sentiment  dropped to a two-year low and the outlook for manufacturing in 2025 is gloomy.

Inflation dropped to the Bank of England’s target of 2% in September, with a reading of 1.7%. Since then, however, inflation has rebounded and hit 2.6% in November, the highest level in eight months. BoE policy makers want to see inflation move back towards the 2% target before cutting rates. The BoE holds its next meeting on Feb. 6 and the December CPI report, which will be released on Jan. 15, will be a critical factor in the BoE rate decision. The BoE has joined the rate-cutting parade but has been cautious, delivering two quarter-point cuts in 2024.

GBP/USD Technical

• GBP/USD is putting pressure on resistance at 1.2425. Above, there is resistance at 1.2497
• 1.2309 and 1.2237 are the next support levels

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