So far, the GBP/USD pair has been defending the critical level of 1.20, and it traded slightly higher during the EU session on Thursday, with cautious trading observed in the markets.
FOMC minutes did not surprise
On Wednesday, investors paid attention to the FOMC Meeting Minutes, showing that a few respondents advocated a 50-basis-point (bps) rate rise. In contrast, others said the likelihood of a recession in 2023 was elevated. Importantly, all members agreed that more rate rises are essential for achieving the inflation objective while simultaneously favoring additional Fed balance sheet reductions. Participants concluded that the tight labor market will continue to apply upwards pressure on inflation.
James Bullard, president of the Federal Reserve Bank of St. Louis, stated during the middle of the US session that more aggressive interest rate hikes now would give the FOMC a better chance to tame inflation, adding that he believes the FOMC has a good chance of beating inflation this year without triggering a recession.
Later in the day, the US Bureau of Economic Analysis will announce its second estimate of the Gross Domestic Product (GDP) growth for the fourth quarter. The US economic agenda will also include the weekly Initial Jobless Claims and the National Activity Index from the Chicago Fed.
Mixed UK macro picture
As for the UK macro news, the UK government unexpectedly posted a budget surplus in January as self-assessment income tax revenues increased, according to the Office for National Statistics.
Compared to the consensus forecast of a £7.8 billion deficit, the Treasury achieved a surplus of £5.4 billion in borrowing, a decrease of £7.1 billion compared to January 2022.
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Originally, the Office for Budget Responsibility anticipated a surplus of £0.4 billion. In January, interest on government debt hit £6.7 billion, the biggest monthly total since records began in 1997.
Moreover, according to a poll by the Confederation of British Industry, industrial production dropped in February at the sharpest rate since September 2020.
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The CBI’s index of manufacturing output for the three months leading up to February decreased to -16 from -1 the previous month. Nevertheless, the balance of overall news order improved from -17 to -16 but remained quite unfavorable.
“Conditions in manufacturing remain challenging, with output disappointing and order books having thinned out since late last year,” said CBI deputy chief economist Anna Leach.
In February, the private sector in the United Kingdom returned to growth, with the S&P Global/CIPS flash PMI composite output index increasing from 48.0 to 53.0.
This was the first time since July 2022 that the index was over the 50-point threshold that distinguishes contraction from expansion.
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