GBP/USD slides below 1.2550, breaks below recent uptrend with US data in focus

• GBP/USD recently fell to fresh session lows under the 1.2550 level amid focus on the weakening UK economy.
• Upcoming US data on Wednesday (ISM Manufacturing PMI) and Friday (jobs) will be worth watching and could spur fresh downside.
• A widening Fed/BoE policy and UK/US growth differentials suggests further downside is possible, with technicals also taking a bearish turn.

GBP/USD is on the back foot on Tuesday ahead of the release of key US data, despite US yields easing back from earlier session highs and US equities trading in the green, both factors that might normally lift the pair. Cable was last trading at session lows underneath the 1.2550 level and eyeing a run lower towards its 21-Day Moving Average in the mid-1.2400s, with the pair seemingly instead being driven by concerns about the weakening UK economy once again.

Final UK Manufacturing PMI data for May showed that manufacturing activity in the UK expanded at its weakest pace rate since January 2021, as producers of consumer goods struggled amid the worst cost-of-living crunch in multiple decades. Meanwhile, though the latest Nationwide house price data showed another jump in prices last month, a slowdown in the market is expected, the mortgage lender said.

At 1400GMT, US ISM Manufacturing PMI survey data for May is slated for release and should paint a comparatively more constructive picture of the health of the US economy, which could add further downside to GBP/USD. But the key data out this week will be Friday’s US labour market report. Any signs of easing inflation pressures from this week’s data might be a negative for the buck as it eases pressure on the Fed to tighten so aggressively.

However, the Fed is still set to be substantially more hawkish in the coming quarters than the BoE, with the UK’s economic outlook much more fragile than in the US. Technical selling might also be at play on Wednesday, with GBP/USD looking like it has broken the bullish uptrend of the last few weeks. That potentially means that, in the weeks ahead, a retest of May’s sub-1.2200 lows is on the cards.