GBP/USD Trades Modestly Lower Ahead of US ADP Employment Changes, Trading Above Mid-1.2600

In early Asian trading on Thursday, GBP/USD fell slightly. A recovery in the US dollar and US Treasury yields has put some selling pressure on GBP/USD. As of press time, GBP/USD was trading at 1.2665, up 0.01% on the day. Meanwhile, the U.S. dollar index surged to 102.45, hitting its highest level in three weeks.

On Wednesday, the U.S. ISM Manufacturing Purchasing Managers’ Index was 47.4, compared with the previous reading of 46.7, which was better than the expected reading of 47.1. In addition, the labor market index US JOLTs job vacancies was 8.79 million, lower than expected.

Minutes of the December Federal Reserve meeting showed that participants believed that policy rates were at or near the peak of this tightening cycle, but participants cautioned that the specific policy path will depend on the changing economic situation. Richmond Fed President Thomas Barkin said earlier Wednesday that despite progress in controlling inflation, raising interest rates is still on the table. This in turn boosts the US dollar against other currencies and is negative for the GBP/USD pair.

On the other hand, fears of a UK recession and weakness in manufacturing have dented the pound’s appeal. S&P Global’s December manufacturing purchasing managers index (PMI) released on Tuesday fell to 46.2 from the previous reading of 46.4.

Market players will be keeping a close eye on the UK’s December S&P Global/CIPS Composite PMI and Services PMI. In addition, changes in U.S. ADP employment numbers and the number of initial jobless claims last week will also be released on Thursday.

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