The Pound to Dollar (GBP/USD) exchange rates posted fresh 5-month lows at 1.2300 on Monday before a tentative recovery to 1.2345.
Dollar strength remains a factor, but the Pound overall has been hurt by increased speculation that the Bank of England (BoE) will sanction an earlier interest rate cut.
Significantly, the Pound also failed to draw benefit from strong gains in equities.
The latest business confidence data will be important both for UK economic sentiment and global bond markets, both factors which will be key for Sterling.
Strong data would trigger fresh doubts whether an early BoE rate cut is realistic and help underpin the Pound.
The latest European and US PMI business confidence data will be released during Tuesday.
The data overall will be important for confidence in the global economy. Stronger-than-expected data would help boost confidence and potentially support risk assets.
There would, however, also be the risk of further upward pressure on bond yields which would have significant market implications.
As far as the Euro-Zone is concerned, the manufacturing sector is forecast to remain in contraction territory despite a small improvement from 46.5 from 46.1 previously while the services sector is set to register a slight improvement from 51.5.
There was surprise UK manufacturing data last month with a reading just above 50.0 for the first time since August 2022, but no further improvement is expected this month while the services sector is set to remain at 53.0.
As far as US PMI data is concerned, little change is expected from last month when the manufacturing and services sectors at 51.9 and 51.7 respectively.
Stronger-than-expected data would trigger fresh reservations surrounding the potential for Federal Reserve rate cuts.
The relative outlook for economies will also be important for interest rate expectations and currency markets.
Evidence of improving European economies would help curb further dollar buying.
Bank of Singapore strategist Moh Siong Sim commented; “If the PMI data continues to show that the rest of the world outside the U.S. is improving, that could continue to keep the dollar in check.”
In contrast, weaker data in the Euro-Zone would increase pressure for an early cut in ECB interest rates.
Global risk conditions, equity-market moves and the extent of demand for defensive assets will remain key elements in global markets.
Elsewhere, markets will be on alert for Bank of Japan intervention to support the yen given that USD/JPY is trading very close to 33-year highs and close to a suspected intervention level at 155.00.
