• The Pound Sterling dips against the US Dollar on robust US Manufacturing PMI data. 
• BoE officials see expectations of two or three rate cuts for this year as reasonable.
• Investors await the UK Manufacturing PMI for fresh guidance on the economic outlook.

The Pound Sterling (GBP) faces an intense sell-off against the US Dollar in Monday’s early American session. The US Dollar Index (DXY) rises to 104.90 on stronger than expected United States ISM Manufacturing PMI for March. The Manufacturing PMI rose to 50.3 from expectations and the prior reading of 48.4 and 47.8, respectively. The US factory data climbs above the 50.0 threshold for the first time after contracting for 15 straight months. This indicates a sharp recovery in the manufacturing sector, exhibiting a strong economic outlook.

Meanwhile, investors await fresh guidance on when the Bank of England (BoE) and the Federal Reserve (Fed) will pivot to rate cuts. Earlier this year, the Fed was expected to start reducing interest rates sooner than the BoE, supporting the Pound Sterling’s valuation against the US Dollar. However, the BoE is currently anticipated to follow the Fed’s footprints and start rate cuts from June. Two BoE policymakers, Catherine Mann and Jonathan Haskel, who were described as hawks, see no need for more rate hikes as higher interest rates are impacting labor market conditions and consumer spending.

Catherine Mann said in an interview with Bloomberg last week that she dropped her rate hike call after observing that consumers are reluctant to pay higher prices on services such as travel and hospitality. Mann added that firms are cutting working hours in times when more employment is required. She further added that the number of workers in the labor market will increase due to the government’s cuts to social security rates.

The Pound Sterling is expected to depreciate if the BoE reduces key borrowing rates earlier than expected after consistently raising them for more than two years.

Daily digest market movers: Pound Sterling falls sharply while US Dollar rises

• The Pound Sterling refreshes its monthly low near 1.2560 against the US Dollar. Market sentiment has turned downbeat as the upbeat US Manufacturing PMI has improved the safe-haven’s appeal. Also, investors remain anxious ahead of the crucial Nonfarm Payrolls (NFP) report for March, which will be published on Friday. The official labor market data is one of the main economic data releases that influences the Fed’s rate cut expectations.
• On the United Kingdom front, investors look for fresh cues about when the Bank of England will start reducing interest rates. The market expectations for the BoE pivoting to rate cuts have come forward to the June meeting as the central bank was seen as slightly dovish in its latest monetary policy statement. 
• The BoE sounded dovish as none of the policymakers voted for a rate hike. This indicates that BoE policymakers see current interest rates as restrictive. Policymakers do not see more interest rate hikes appropriate when they are worried that further policy tightening could dampen the economic outlook or they see progress in inflation declining to the 2% target.
• In addition, BoE Governor Andrew Bailey said after the last BoE meeting that market expectations for two or three rate cuts this year are “reasonable,” boosting expectations for the BoE to cut interest rates from June.
• Going forward, investors will focus on the S&P Global/CIPS Manufacturing PMI final data for March, which will be published on Tuesday. The factory data is forecasted to have remained unchanged from its preliminary reading of 49.9, which came in marginally below the 50.0 threshold that separates expansion from contraction. Investors will keenly focus on the agency’s commentary on businesses’ expectations for the domestic and global demand outlook.

Technical Analysis: Pound Sterling falls below 1.2600

The Pound Sterling is expected to deliver a breakdown of the consolidation formed in a range of 1.2575-1.2675 in the past six trading sessions. The Cable has dropped below the 200-day Exponential Moving Average (EMA), which trades around 1.2665, indicating weak demand in the broader term.

On a broader time frame, the horizontal support from December 8 low at 1.2500 would provide further cushion to the Pound Sterling. Meanwhile, the upside is expected to remain limited near an eight-month high of around 1.2900.

The 14-period Relative Strength Index (RSI) dips below  40.00. If it sustains below this level, bearish momentum will trigger.