GBP/USD recovers its losses below 1.2700 ahead of UK, US PMI data

• GBP/USD recovers some lost ground around 1.2693 on Wednesday.
• The January Richmond Fed Manufacturing Index came in at -15 vs. -7 consensus and -11 prior.
• The markets expect the Bank of England (BoE) to start cutting rates as early as May.
• Traders await the UK and US PMI reports on Wednesday.

The GBP/USD pair recovers its recent losses during the early Asian trading hours on Wednesday. The major pair has flirted with four-day lows near around 1.2650 and rebounded to nearly the 1.2700 mark. Investors await the release of January’s UK advanced Manufacturing and Services PMI for fresh impetus. GBP/USD currently trades near 1.2693, up 0.06% for the day.

According to the Richmond Fed Manufacturing Survey, the composite manufacturing index for January fell to -15 from -11 in December, worse than the market expectation of -7. Among its three component indices, shipments increased from -17 to -15, new orders dropped from -14 to -16, and employment fell significantly from -1 to -15.

The Federal Reserve (Fed) governor, Christopher Waller, stated that the Fed should cut rates "methodically and carefully" and not “rushed." Additionally, Atlanta Fed President Raphael Bostic said he sees rate cuts beginning in the third quarter, while San Francisco Fed President Mary Daly suggested policymakers must be patient about rate cuts. The less aggressive rate-cut stance from the Fed provides some support to the US Dollar (USD) and acts as a headwind for the GBP/USD pair.

On the other hand, investors place a bet that the Bank of England (BoE) will start cutting rates as early as May, with three more cuts over 2024 taking it to 4.25% from 5.25% now. However, there’s no change in monetary policy expected in its February meeting. Market players will take more cues from the data release on Wednesday. The preliminary UK S&P Global Services PMI is estimated to ease from 51.4 in December to 51.0 in January, while the Manufacturing PMI is projected to remain steady at 47.9.

The UK S&P Global/CIPS Purchasing Managers Index (PMI) and US S&P Global PMI reports will be released on Wednesday. The attention will shift to the US Gross Domestic Product (GDP) for Q4 on Thursday and the Core Personal Consumption Expenditures Price Index (Core PCE) on Friday. These figures might convince central bank policymakers about the further path of monetary policy.