The pound lost ground midweek after a drop in business activity raised fresh concerns about the health of the UK economy. With signs that demand is weakening and inflation pressures are easing, investors are beginning to question the strength of the recovery. This has also fuelled speculation that the Bank of England may need to lower interest rates sooner than expected.
The British pound reversed earlier gains on Wednesday following unexpectedly weak PMI figures, which revealed a fresh downturn in UK private sector activity.
The data has raised new concerns over the strength of the UK’s economic recovery and reinforced speculation that the Bank of England may lean towards further monetary easing.
After initially climbing, GBP/USD slid to an intraday low of 1.33964 as the S&P Global/CIPS composite PMI for May dropped to 49.4, signalling contraction and falling short of the 50.8 forecast.
April’s reading was 48.5. The pair had briefly touched 1.3441 before the release but swiftly lost ground as markets reacted.
Chris Williamson, Chief Economist at S&P Global Market Intelligence, noted that the data pointed to “waning inflationary pressures, softening demand, and increasing job losses”—a mix that could push the BoE to act sooner rather than later on rate cuts.
The currency pair failed to hold above 1.3440, retreating after hitting a high of 1.3469 earlier in the session. It settled near the 1.3400 mark, closing at 1.33988.
The MACD histogram has turned negative with a bearish crossover, while short-term moving averages (5, 10, 30) are beginning to flatten and slope downwards—indicating a possible short-term downtrend.
Immediate support is seen at 1.33757. A decisive break below this level may expose the pair to further losses towards 1.3350.
On the upside, resistance lies at 1.3420, followed by 1.3440. A strong push above both is required to revive bullish momentum. Until then, the short-term bias remains cautious.
With UK economic indicators continuing to miss expectations and broader risk appetite still subdued, GBP/USD may stay under pressure in the near term.
While the current trend is not sharply bearish, a dip towards the 1.3350 area cannot be ruled out—especially if dovish commentary from the Bank of England gains traction.
Traders will be closely monitoring Thursday’s GfK consumer confidence report along with any fresh signals from the BoE for clues on the pound’s next move.
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