Anna 
During Thursday’s London session, the Pound Sterling (GBP) experienced a sharp decline from the crucial resistance level of 1.2750 following the release of weak preliminary United Kingdom (UK) PMI data for May. The S&P Global/CIPS PMI report revealed a faster-than-expected drop in the Composite PMI to a two-month low of 52.8, compared to estimates of 54.0 and the previous reading of 54.1. This decline was primarily driven by a significant decrease in the Services PMI, which fell to a six-month low of 52.9, below the consensus of 54.7 and the previous reading of 55.0. However, the Manufacturing PMI exceeded expectations by rising above the 50.0 threshold, indicating expansion, and grew strongly to 51.3. Economists had forecasted a more modest increase to 49.5 from 49.1 in April.
Despite initial optimism surrounding the Bank of England (BoE) potentially shifting to policy normalization in its June meeting after maintaining hawkishness on interest rates for over two years, the GBP/USD pair failed to sustain gains. Traders began paring back bets favoring BoE rate cuts in June following the release of the Consumer Price Index (CPI) report for April, which showed inflation softening at a slower pace than expected.
The CPI report indicated that annual headline and core inflation declined to 2.3% and 3.9%, respectively. Notably, the service price index, a key inflation measure, saw a modest decline to 5.9% from the previous reading of 6.0%. The persistence of stubborn service inflation in the UK has remained a significant obstacle to the progress of disinflation, driven by wage growth.
Overall, the disappointing PMI data and softer-than-expected inflation figures have dampened expectations for BoE rate hikes in the near term, contributing to the Pound Sterling’s retreat from resistance levels against the US Dollar (GBP/USD) in Thursday’s trading session.
