GBP/USD posts modest gains above 1.2450, BoE policymaker dampens hopes of summer rates cut

■GBP/USD trades on a stronger note near 1.2450 amid softer USD on Wednesday. 

■US flash S&P Global Manufacturing and Services PMI came in weaker than expectations in April. 

■BoE’s Pill said inflation must be squeezed out of the UK economy and cautioned against cutting too soon.

The GBP/USD pair recovers to 1.2450 on Wednesday during the early Asian session. The downbeat US April PMI data and increasing appetite for the risk-linked space exert some selling pressure on the US Dollar (USD). Later in the day, the US Durable Goods Orders and weekly Mortgage Applications will be released. 

Business activity in the United States slowed in April to a four-month low owing to lower demand, according to the S&P Global report on Tuesday. The flash Manufacturing PMI came in weaker than the expectation, dropping to 49.9 in April from 51.9 in the previous reading. Meanwhile, the Services PMI declined to 50.9 from 51.7, below the market consensus of 52.0. Finally, the Composite PMI, which tracks both the manufacturing and services sectors, fell to 50.9 in April from 52.1 in March. The Greenback has attracted some sellers in response to the US economic data.  

The Federal Reserve (Fed) officials look for signs that the economy is ebbing enough to bring inflation down further, even though the data in recent weeks showed hotter-than-expected inflation and employment readings. The US central bank will schedule the monetary policy meeting next week, and markets expect the Fed to leave its policy rate unchanged in the current 5.25%–5.50% range. Several Fed policymakers signaled at least one rate cut this year and indicated that monetary policy needs to be restrictive for longer. This, in turn, continues to lift the USD and cap the upside of GBP/USD. 

On the other hand, the speculation that the Bank of England (BoE) will cut interest rates in summer declined as the UK chief economist reiterated the need for “restrictive” monetary policy. On Tuesday, BoE Chief Economist Huw Pill said that easing in headline inflation was not enough of a reason to ease policy, adding that there were greater risks from cutting the rates too quickly, rather than too late. These comments provide some support to the Pound Sterling (GBP) against the USD.