GBP/USD rebounds swiftly from one-week low, rallies back above 1.2400 after US data

The GBP/USD pair attracts dip-buying buying near the 1.2275 area, or a one-week low touched earlier this Monday, and builds on its intraday ascent. Spot prices climb to a fresh daily high above 1.2400 after the relese of lower-than-forecast ISM Manufacturing PMI data, which showed US purchasing managers believed there was a fall in activity in March. This makes the market wary of further rate hikes from the Federal Reserve and weighs on the US Dollar (USD), but lifts the GBP/USD over the psychologically significant 1.2400 hurdle. 

US ISM Manufacturing PMI for March comes out at 46.3, falling below expectations of 47.5 and lower than the previous month's 47.7 on Monday. The prices paid component, which is of particular interest to currency traders because it impacts on inflation expectations and therefore the policy trajectory of the Federal Reserve, also under-shoots forecasts, coming out at 49.2 when a rise to 53.8 had been forecast, from a previous 51.3. This also reflects a watershed moment since it shows a dip below the 50 mark which distinguishes growth from contraction, suggesting prices for manufactured goods are actually falling (deflationary). The employment component also shows a fall to 46.9 versus the 49.8 expected, and new orders to 44.3 from estimates of 44.6. All in all the data weighs on the US Dollar.  

Further, the prevalent risk-on mood - as depicted by a generally positive tone around the equity markets - is seen weighing on traditional safe-haven assets, including the Greenback. Apart from this, the prospects for additional interest rate hikes by the Bank of England (BoE) underpin the British Pound and contributes to the pair's goodish intraday rally of over 120 pips.

It is worth recalling that BoE Governor Andrew Bailey said last week that interest rates may have to move higher if there were signs of persistent inflationary pressure. Adding to this, the final UK GDP print released on Friday showed that the economy expanded by 0.1% in Q4 and avoided a technical recession, reaffirming hawkish BoE expectations. The Federal Reserve (Fed), meanwhile, is also anticipated to stick to its inflation-fighting rate hikes amid worries that rising energy prices will push inflation higher. In fact, the current market pricing indicates around a 55% chance of a 25 bps lift-off at the next FOMC monetary policy meeting in May. 

This week's rather busy US economic docket sees JOLTS Job Openings on Tuesday, the ADP report on private-sector employment and ISM Services PMI on Wednesday, and the crucial US monthly employment report - popularly known as NFP - on Friday. The latter will influence the near-term USD price dynamics and determine the next leg of a directional move for the GBP/USD pair.

Technical levels to watch