The US Dollar faced renewed pressure on Monday after the Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI) for March fell to 54, down from 56.1 in February and below the consensus estimate of 55 [1][2]. The employment sub-index dropped sharply to 45.2, marking its lowest level since December 2023, while the prices paid component surged to 70.7, the highest since October 2022 [1][2]. This combination of weakening payrolls and rising input costs has heightened market concerns about stagflation, particularly in the context of ongoing geopolitical tensions and elevated energy prices linked to the conflict with Iran [1][2].
GBP/USD traded flat, settling near 1.3240 in a thin session due to the UK Easter Monday holiday, with the pair rebounding modestly from last week's low of 1.3180 but remaining in a broader downtrend from the late January high of 1.3870 [1]. The Bank of England (BoE) unanimously held the Bank Rate at 3.75% in March, a shift from the previous 5-4 split, as members responded to rising energy costs [1]. The BoE warned that CPI inflation could rise to between 3% and 3.5% in the coming quarters, while GDP growth remains stalled and unemployment has reached a 10-year high of 5.2% [1]. The next key data for the Pound is the S&P Global Services PMI for March, with a consensus of 51.2 [1].
USD/JPY also traded flat, closing around 159.60 after consolidating in a 150-pip range between 158.50 and 160.00 since early April [2]. The Bank of Japan (BoJ) held rates at 0.75% in March by an 8-1 vote, with one member favoring a hike to 1.00% [2]. Markets are pricing a 70% probability of a 25 basis point hike at the April 27-28 meeting, while the IMF has urged the BoJ to continue tightening policy [2]. Finance Minister Satsuki Katayama highlighted rising speculative activity in currency and crude oil markets [2].
Technical analysis for both GBP/USD and USD/JPY indicates mildly bullish to neutral intraday trends, with both pairs trading just above their respective 200-period exponential moving averages on the 5-minute chart [1][2]. However, fading upside momentum is noted, and a break below these averages could shift the bias to the downside [1][2].
The Federal Reserve is maintaining the federal funds rate at 3.50% to 3.75%, with upcoming catalysts including the FOMC minutes and the core Personal Consumption Expenditures (PCE) Price Index later in the week [1][2]. Fed Chair Jerome Powell recently commented that inflation is not falling as quickly as hoped [2].
CONCLUSION
The weaker-than-expected ISM Services PMI has weighed on the US Dollar, amplifying stagflation concerns amid persistent inflation and labor market softness. Both GBP/USD and USD/JPY remain rangebound, with technicals suggesting limited near-term direction until further data releases. Market participants are now focused on upcoming central bank communications and inflation data for additional guidance.