- GBP/USD came under intense selling pressure during the early part of the European session.
- The disappointing release of the UK Services PMI raised doubts about further BoE rate hikes.
- Some cross-driven weakness further weighed on sterling and contributed to the steep decline.
The GBP/USD pair continued with its struggle to make it through the 1.2600 round-figure mark and witnessed a dramatic turnaround during the early part of the European session on Tuesday. The steep intraday slide dragged spot prices back below the 1.2500 psychological mark, or a fresh daily low in the last hour.
The latest leg of a sudden fall of over 100 pips followed the disappointing release of the UK Services PMI, which showed a sharp deceleration in growth during May. In fact, the Preliminary UK Services Business Activity Index slumped to a 15-month low and arrived at 51.8 versus April’s final readout of 58.9 and 57.3 expected.
Adding to this, the seasonally adjusted S&P Global/CIPS UK Manufacturing PMI dropped to 54.6 in May versus 55.1 expected and April’s final reading of 55.8. The data reaffirmed the Bank of England’s gloomy economic outlook and forced investors to scale back bets for any further rate hikes in the near future.
This, along with the UK-EU impasse over the Northern Ireland protocol, weighed heavily on the British pound. Apart from this, the downfall could further be attributed to some cross-driven weakness stemming from a spike in the EUR/GBP cross that followed hawkish comments by the European Central Bank policymakers.
With the latest leg down, the GBP/USD pair reversed the previous day’s positive move to a near three-week high and also snapped a three-day winning streak. Some follow-through selling below mid-1.2400s will suggest that the recent bounce from the YTD low has run its course and set the stage for further near-term losses.
Technical levels to watch