GBP/USD holds below the mid-1.2700s, eyes on UK, US PMI data

• GBP/USD loses ground around 1.2725 in the first trading day of 2024. 
• The markets are pricing in 88% possibility of rate cuts in March, according to the CME Group’s FedWatch tool. 
• Investors are pricing as many as six quarter-point rate cuts from the Bank of England (BoE) during 2024.
• UK S&P Global/CIPS Manufacturing PMI and US S&P Global Manufacturing PMI reports will be released later on Tuesday. 

The GBP/USD pair posts modest losses during the early Asian session on Tuesday. The modest rebound in the US Dollar (USD) lends some support to the major pair. At press time, GBP/USD is trading near 1.2725, down 0.04% for the day. 

After the US Federal Reserve’s (Fed) final meeting of the year earlier in December, Fed officials held rates steady for the third straight month and signaled a series of interest rate cuts in 2024 as inflation eases faster than estimated. Traders are betting on aggressive rate cuts, starting as early as March. The markets are pricing in 88% odds rate cuts in March, according to the CME Group’s FedWatch tool.

Data released on Friday revealed that the US Chicago Purchasing Managers’ Index (PMI) arrived at 46.9 in December from 55.8 in November, weaker than the estimation of 51.0. Market players will take more cues from the US Nonfarm Payrolls (NFP) due on Friday. The figure is projected to show an increase of 163K in December versus 199K prior.

On the British Pound front, the Bank of England (BoE) said it is premature to talk about cutting rates. However, investors are pricing as many as six quarter-point rate cuts in 2024. The next BoE monetary policy meeting will be on February 1.

Later on Tuesday, the UK S&P Global/CIPS Manufacturing PMI for December will be released. Also, the US S&P Global Manufacturing PMI will be due. The highlight this week will be the Federal Open Market Committee (FOMC) minutes on Wednesday and December’s US employment data, including US Nonfarm Payrolls, Unemployment Rate, and Average Hourly Earnings, due on Friday.