The Pound Sterling (GBP) is defying expectations, clinging to its position above 1.2700 on Thursday despite the release of disappointing UK PMI data for May.

Market Reaction to UK PMI:

• Weaker-than-Expected PMI: The S&P Global/CIPS PMI report revealed a faster-than-anticipated decline in the Composite PMI, reaching a two-month low of 52.8. This is lower than both forecasts and the previous reading.
• GBP Strength Persists: Despite the weak PMI data, the GBP/USD pair remains firm.

Reason for GBP Strength:

• Fading Rate Cut Bets: The recent inflation data, showing a slower-than-expected decline in inflation, has dampened expectations of a Bank of England (BoE) rate cut in June. This shift in sentiment is supporting the Pound.
• Stubborn Service Sector Inflation: While headline and core inflation figures softened, the service price index exhibited only a modest decline. This persistent inflation, driven by wage growth, is seen as an obstacle to faster disinflation and potential rate cuts.

Technical Analysis (GBP/USD):

• Bullish Momentum: The GBP/USD extends its winning streak for a fifth day, suggesting a bullish trend.
• Fibonacci Retracement: The pair remains comfortably above the 61.8% Fibonacci retracement level (based on highs and lows from March and April).
• EMAs and RSI: All short-term and long-term EMAs are sloping upwards, and the RSI is in bullish territory, indicating continued upside momentum.

The GBP’s resilience in the face of weak PMI data is a surprise. The focus seems to be on the diminished prospects of a June rate cut by the BoE, outweighing concerns about the UK economy. The technical indicators also favor a bullish GBP in the near term. However, it’s important to stay updated on economic data and central bank pronouncements, as these can influence the Pound’s direction.