GBP/USD tumbles back below 1.2500 as weak UK PMIs reignite UK growth fears, amid risk-off flows

• GBP/USD has slid back below 1.2500 on Tuesday after weak UK PMI data and amid risk-off flows.
• The pair is eyeing a test of its 21DMA around 1.2425 as US PMIs, remarks from Fed Chair Powell loom.

The sterling bears regained control on Tuesday and pushed GBP/USD back below the 1.2500 level, a roughly 100 pip turnaround from earlier session highs just shy of the 1.2600 level after UK PMI data released earlier in the day reignited fears about a possible recession later this year. The flash estimate of May’s headline Services PMI fell to 51.8, well below the expected drop to 56.9 from 58.9 in April. A reading below 50 suggests negative growth.

The latest data has been interpreted as dampening the prospect for further BoE monetary tightening, given that bank had already been worried about UK growth as the country experiences its worst cost-of-living crisis in decades. The PMI data comes on the heels of last week’s UK Consumer Price Inflation reading that showed headline prices pressures rising at a four-decade high pace of 9.0% YoY in April and jobs data that showed the UK labour market remains tight at the start of Q2/end of Q1.

In wake of aftermarket earnings on Monday from Snap that alluded to a weakening macro environment, which comes on the heels of big US retailers last week essentially pointing to the same thing, risk appetite has soured a little on Tuesday, with this also weighing on GBP/USD. As focus turns to the upcoming release of US PMI data at 1345GMT and then a speech from Fed Chair Jerome Powell at 1620GMT, GBP/USD bears are eyeing a retest of the 21-Day Moving Average, which currently resides close to 1.2425.