Pound shrugs as construction PMI jumps

The British pound is slightly lower on Tuesday. GBP/USD is down 0.21%, trading at 1.2535 in the European session at the time of writing.

The UK construction PMI jumped to 53.0 in April, up from 50.2 in March and above the forecast of 50.4. This is only the second reading showing growth after six straight months of contraction. Last week, the services PMI rose to 55.0, up from 53.1 in April. This was the strongest level since May 2023 and services has shown growth for six straight months, with readings above the 50 level. The PMI survey noted that business and consumer spending were higher in April and reflective of an improving UK economy.

Bank of England may provide clues for a June hike

The Bank of England meets on Thursday and is expected to maintain the cash rate at 5.25%. There is pressure on the central bank to ease the pain for households and businesses, which are groaning under high interest rates. With inflation falling to 3.2% in March, the BoE is closer to cutting rates, likely at the June 20th meeting. If this is indeed the plan, we should see some dovish signals at Thursday’s meeting, similar to the ECB, which signaled in April that it would lower rates at its next meeting on June 6.

Central banks aren’t working together but they are very aware of what’s on the plate of their counterparts and prefer not to act alone. The Fed has delayed lowering rates due to a rise in inflation but the anticipated ECB hike in June will make it a bit easier for BoE policy makers to follow with a rate cut two weeks later.

Fed members have sounded cautious about lowering rates and Richmond Fed President Barkin joined the chorus on Monday. Barkin said that first-quarter inflation data was “disappointing” but he remained hopeful that the current restrictive policy would dampen demand and bring inflation back to the target of 2%.

GBP/USD Technical

• GBP/USD tested support at 1.2535 earlier. Below, there is support at 1.2504
• 1.2565 and 1.2591 are the next resistance lines

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