Pound Sterling to US Dollar Exchange Rate Forecast: Could GBP/USD Return to Highs on UK Services Report?

Pound to US Dollar Exchange Rate Slips from Weekly Highs on UK Growth Uncertainties

UPDATE 16:07 BST: The market seems to have lost faith in the latest UK construction results, making it difficult for the Pound to US Dollar (GBP/USD) exchange rate to hold its best levels on Monday afternoon.

GBP/USD shed its weekly gains, as investors sold the pair from its highs ahead of Tuesday’s key UK services report.

This was despite news that US factory orders had been underwhelming in April. Factory orders were forecast to only contract by -0.5% month-on-month, but instead slumped by -0.8%.

Pound to US Dollar Exchange Rate Holds Ground as Investors Await Services Data

UPDATE 14:27 BST: Monday’s UK data ultimately had little impact on the Pound Sterling to US Dollar (GBP/USD) exchange rate.

Britain’s May construction PMI from Markit did beat forecasts and remain at 52.5, but as construction is a low-influence sector and there are still signs of slowdown, Sterling’s gains were limited.

However, GBP/USD did come closest to the key interbank level of 1.34 for the first time in over a week.

Pound Sterling to US Dollar (GBP/USD) Exchange Rate Edges Higher Ahead of Anticipated UK Services Report

Signs of recovery in UK data have helped the Pound Sterling to US Dollar (GBP/USD) exchange rate recover from its worst levels in months, but the Pound (GBP) likely needs stronger domestic support before it can see a real sustained recovery.

Last week saw GBP/USD edge higher from the week’s opening interbank level of $1.33, but the pair did touch a low of $1.32 near the beginning of the week. This was the lowest level GBP/USD had hit in around six months – since November 2017.

This week so far, GBP/USD remains in the region of 1.33 – but higher than the levels seen last week.

The US Dollar’s (USD) recent rally appeared to fizzle out last week, causing some USD rivals to rebound from lows.

GBP/USD gains were made easier by the latest UK ecostats, which have beaten expectations and shown that UK growth may be picking up following a poor performance in Q1.

Pound (GBP) Exchange Rates Supported by UK Manufacturing and Construction

Could Britain’s economy be bouncing back from the poor performance seen in Q1? If UK data continues to impress investors it could indicate that Britain’s economy is becoming more resilient again which would boost Bank of England (BoE) interest rate hike bets.

Over the past week, relatively notable UK ecostats have been printing above forecasts. This has left the Pound (GBP) looking a little more appealing, but investors are waiting to see what tomorrow’s UK services PMI data looks like before making any bigger moves.

Last Thursday saw the publication of Britain’s consumer confidence survey from May, which beat expectations and lightened to -7 rather than the forecast -8.

Friday followed with Britain’s May manufacturing PMI, which unexpectedly improved from 53.9 to 54.4, and then Monday’s construction PMI which also beat forecasts by remaining at 52.5.

Analysts weren’t entirely convinced with the construction PMI, with Howard Archer of the EY ITEM Club saying:

‘Fuelling concerns about the construction sector’s difficulties in building momentum, new orders contracted anew in May, confidence was at a 7-month low and employment growth slowed. This suggests that a marked upturn in construction activity is likely to remain conspicuous by its absence.’

However, for the markets, it bolstered hopes that Britain’s upcoming services PMI report may also beat expectations.

US Dollar (USD) Exchange Rates Sold from Highs despite Solid US Non-Farm Payrolls Data

The market bullishness that surrounded the US Dollar (USD) for much of April and May largely seemed to fade last week.

While an optimistic US economic outlook is likely to keep the US Dollar looking appealing, perceived cautiousness from the Federal Reserve as well as global trade and diplomatic uncertainties have weighed on appeal.

Towards the end of last week, the US Dollar was supported by some stronger-than-expected US data. This limited the Pound to US Dollar (GBP/USD) exchange rate’s gain potential.

US Non-Farm Payrolls figures beat expectations in many key prints, with the unemployment rate unexpectedly improving from 3.9% to 3.8%.

ISM’s key May manufacturing PMI for the US also beat forecasts, rising from 57.3 to 58.7.

Pound to US Dollar (GBP/USD) Forecast: UK Services Report in Focus

While this week’s economic calendar is relatively quiet, major UK and US data will be published on Tuesday which could influence the Pound to US Dollar (GBP/USD) exchange rate’s movement for most of the week.

As UK manufacturing and construction PMIs both beat forecasts in May, investors are hoping Britain’s key services PMI can beat expectations too. The services report will be published on Tuesday morning.

Analysts forecast that the services PMI will have improved slightly from 52.8 to 53. As services make up by far the largest chunk of Britain’s economic activity, stronger-than-expected services data would boost hopes that Britain’s economy is strengthening overall.

A solid services PMI would cause Bank of England (BoE) interest rate hikes to rise and GBP/USD could spend most of the week advancing.

Tuesday will also see the publication of May’s US non-manufacturing PMI from ISM, which is forecast to have climbed from 56.8 to 57.5.

However, the US Dollar (USD) may not see another surge in demand unless the Federal Reserve shows signs that it will up the pace of US interest rate hikes.

As a result, the Pound to US Dollar (GBP/USD) exchange rate is likely to hold its ground this week.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard