GBP/USD builds cushion around 1.1250 as focus shifts to US/UK PMI

• GBP/USD is holding itself above 1.1250 as the impact of hawkish Fed policy has started fading away.
• The BOE has pushed its interest rates to 2.25, the highest since 2008.
• BOE’s denial of an aggressive policy approach seems the weak economic fundamentals.

The GBP/USD pair is displaying a lackluster performance after declining from the critical resistance of 1.1350 in the early Asian session. The cable is oscillating in a narrow range of 1.1250-1.1266 and is expected to continue the volatility contraction pattern ahead of the PMIs data. Earlier, the asset rebounded firmly after sensing a decent buying interest of around 1.1200. The decline move from 1.1350 is a corrective move, which seems to conclude sooner and an upside journey will resume.

The pound bulls displayed wild swings after the announcement of the interest rate decision by the Bank of England (BOE). BOE Governor Andrew Bailey elevated the interest rates by 50 basis points (bps) and pushed the terminal rate to 2.25%. This has been the highest borrowing cost since 2008.

Investors should note that the UK economy is facing the headwinds of soaring price pressures at most and yet they have not adopted an aggressive approach toward monetary policy. The rationale behind moving calm is the poor economic fundamentals, vulnerable labor market conditions, and weak labor market index. The unavailability of support from domestic economic catalysts kept the BOE policymakers to go all in on interest rate elevation unhesitatingly.

Going forward, UK’s S&P Global PMI data will hog the limelight. An improvement in Manufacturing PMI is expected as the economic data is seen at 47.5 vs. the prior release of 47.3. While the Services PMI is expected to scale lower to 50.0 vs. the former figure of 50.9.

Meanwhile, the US dollar index (DXY) is sensing a decline in the buying interest as the impact of extremely hawkish Federal Reserve (Fed) policy has started fading away. Now, investors have shifted their focus towards the PMI data, which is expected to display a mixed performance. A preliminary reading shows a soft landing of Manufacturing PMI at 51.1 while Service PMI will improve significantly to 45.