British Pound Gains Ground on Soft US Data, Hawkish Warsh Comments Fail to Boost Dollar

The British Pound (GBP) strengthened against the US Dollar (USD) on Tuesday, as a series of weaker-than-expected US economic data releases outweighed hawkish commentary from Kevin Warsh, a key economic advisor to former President Donald Trump. The GBP/USD pair climbed to a session high of 1.2680, up 0.4% on the day, before settling near 1.2665.

US Data Disappoints, Fueling Rate Cut Bets

The primary catalyst for the pound’s advance was a disappointing set of US economic indicators. The Institute for Supply Management (ISM) Manufacturing PMI for March fell to 48.5, below the 49.1 forecast and the 49.5 reading in February, signaling contraction in the sector. Additionally, the US Labor Department reported that job openings fell to 8.74 million in February, the lowest level since May 2021, according to the JOLTS survey. These data points reinforced expectations that the Federal Reserve may need to begin cutting interest rates sooner than previously anticipated.

Market-implied probabilities for a Fed rate cut in June rose to 65%, up from 58% a week ago, according to the CME FedWatch Tool. A lower interest rate outlook typically weighs on the US Dollar by reducing its yield advantage over other currencies.

Warsh’s Hawkish Tone Fails to Stem Dollar Weakness

Kevin Warsh, who served as a Federal Reserve governor during the 2008 financial crisis and is considered a potential candidate for Treasury Secretary in a future Trump administration, delivered a speech earlier in the day warning against premature rate cuts. Warsh argued that the US economy remains resilient and that the Fed should maintain a cautious stance to avoid re-igniting inflation.

However, traders largely dismissed his remarks, viewing them as political positioning rather than a reflection of current Fed policy. The market’s focus remained squarely on the deteriorating economic data, which suggested that the economy is cooling faster than policymakers have acknowledged.

Why This Matters for Traders

The divergence between hawkish political commentary and soft economic data is creating a volatile environment for GBP/USD. For pound traders, the key question is whether the US economic slowdown is temporary or the start of a more sustained downturn. If upcoming data, particularly Friday’s nonfarm payrolls report, confirms the weakening trend, the dollar could face further selling pressure, pushing GBP/USD toward the 1.2800 resistance level.

Conversely, if the data surprises to the upside, the dollar could recover, especially given the hawkish rhetoric from influential figures like Warsh. The Bank of England’s own monetary policy outlook also remains a factor, with markets pricing in a first rate cut in August, which could limit the pound’s upside.

Conclusion

The British Pound’s rise against the US Dollar reflects a market that is increasingly focused on weak US economic fundamentals, despite hawkish commentary from political figures. The immediate direction for GBP/USD will likely be determined by upcoming US labor market data, with the nonfarm payrolls report on Friday serving as the next major catalyst. Traders should remain cautious, as the divergence between data and rhetoric could lead to sharp reversals.

FAQs

Q1: Why did the British Pound rise even though Kevin Warsh made hawkish comments?
The market focused on weaker-than-expected US economic data (ISM Manufacturing PMI and JOLTS job openings), which increased expectations for Federal Reserve rate cuts. Hawkish comments from Warsh, who is not currently a Fed policymaker, were seen as less relevant to near-term monetary policy.

Q2: What is the next major event that could move GBP/USD?
The next major catalyst is the US nonfarm payrolls report for March, scheduled for release on Friday. A weak report could accelerate dollar selling, while a strong report could trigger a recovery.

Q3: How does the Bank of England’s policy outlook affect the pound?
Markets currently expect the Bank of England to begin cutting interest rates in August. If the BoE signals a later or slower pace of cuts, it could support the pound. Conversely, earlier-than-expected cuts would weigh on GBP.