GBP/USD stalls around 1.2420 firm on USD strength, mixed sentiment

• GBP/USD is trading in a 60 point range, affected by US bond yields and a lack of domestic data.
• The World Bank raises the US growth forecast for 2023 to 1.1%, but cuts the forecast for 2024 amid falling manufacturing.
• Central bank policy decisions are in the spotlight: RBA hikes rates; the BoC takes center stage, the Fed’s decision is expected.

GBP/USD is hovering around the 1.2420 area after trading in a 60-point range on Tuesday, constrained by a lack of economic data from the United States (US) and mixed market sentiment. Factors related to the yield of US bonds and the Dollar weighed on the British Pound (GBP), which posted consecutive days of losses. At the time of writing, GBP/USD is trading at 1.2420.

The Pound, pressed; Wall Street mixed as central banks navigate inflation uncertainty

Wall Street is trading with a mixed sign. During the European session, traders shrugged off the data as the UK Construction PMI came in at 51.6 in May, topping the previous month’s reading of 51.1. However, the GBP/USD pair failed to gain traction as the US dollar rallied.

Earlier in the North American session, the World Bank improved the economic outlook for the US, forecasting that the economy will grow 1.1%, double the January forecast of 0.5% in 2023. Although it is a good sign, the forecasts by 2024 they will be cut to 0.8%.

Meanwhile, the latest release of the ISM PMIs revealed that the economy is worsening, as the manufacturing PMI contracted for the seventh month in a row. Although the PMI for services increased, the trend is downward, which raises fears of a recession in the United States.

Set against the weakening PMIs, the latest jobs data further bolsters the case that the Federal Reserve needs to do more. Nonfarm payrolls for May have added 339,000 jobs to the economy, portraying a resilient labor market. But the rising unemployment rate keeps the Fed at a crossroads in its fight to curb inflation, which is hovering around twice its target.

Against this background, investor expectations that the interest rate will be maintained at the June meeting stand at 76%, as shown by the CME’s FedWatch tool. However, traders should watch this week’s G10 central bank monetary policy decisions as the Reserve Bank of Australia (RBA) raised rates while the Bank of Canada (BoC ) took center stage on Wednesday. The latest round of inflation in Australia and Canada showed inflation leveling off, but then rising again, putting pressure on central banks.

GBP/USD Price Analysis: Technical Perspective

Technically, the GBP/USD pair remains supported by the longer-term daily EMAs below the exchange rate, which are uptrend but capped by the 20-day EMA at 1.2439. Furthermore, the 1.2500 area is well defended by solid resistance with a bearish formation around that area, which prompted a pullback from the late May rally to the June 2 high at 1.2544, prior to the current pullback. Upside risks lie above 1.2459 and once overcome GBP/USD could test 1.2500. Elsewhere, GBP/USD could extend its losses below the 50-day EMA at 1.2409 and challenge the 100-day EMA at 1.2312.