Pound Down 0.7% against US Dollar on Weaker UK Construction Sector and Politics

Disappointing Construction PMI Puts Pound Sterling (GBP) on Back Foot

UPDATE: Pound Sterling (GBP) slumped sharply across the board this morning as Brexit-based jitters continued to weigh on market sentiment.

September’s UK construction PMI failed to impress as the index dipped from 52.9 to 52.1, dragged down by a general decline in business sentiment.

With the outlook of the domestic economy still appearing rather weak the Pound Sterling to US Dollar (GBP/USD) exchange rate was naturally encouraged to trend lower.

UPDATE: Even with the resolution of the US-Canada trade dispute the outlook of the US economy remains clouded by the Trump administration’s Chinese trade tariffs.

This could put greater pressure on the US manufacturing sector in the months ahead, potentially paving the way for a more substantial loss of growth momentum and leaving USD exchange rates vulnerable to selling pressure.

Softening US Manufacturing Growth Shores up GBP/USD Exchange Rate

UPDATE: As September’s ISM manufacturing PMI proved weaker than forecast this encouraged the Pound Sterling to US Dollar (GBP/USD) exchange rate to push higher.

Although the index still indicates a strong level of growth within the world’s largest economy the decline from 61.3 to 59.8 was enough to dent demand for the US Dollar (USD).

While investors remain confident that the Federal Reserve is on track to continue raising interest rates in the months ahead the disappointing manufacturing data still encouraged USD selling.

Pound (GBP) Exchange Rates Benefit as UK Manufacturing PMI Beats Forecast

A better-than-expected UK manufacturing PMI offered support to Pound Sterling (GBP), with the headline index picking up from 53.0 to 53.8 in September.

This modest improvement was not enough to give GBP exchanges rates a significant boost, however, as the details of the report still point towards a limited level of growth.

While international demand for UK products and business confidence both improved the matter of Brexit continues to cast a shadow over the economic outlook.

With the outcome of negotiations still unclear any improvement in domestic growth and confidence could prove short-lived, especially if the odds lean increasingly towards a harder form of Brexit.

As a result, the Pound Sterling to US Dollar (GBP/USD) exchange rate is likely to experience some jitters in response to developments at this year’s Conservative Party conference.

Easing US-Canada Trade Tensions Support GBP/USD Exchange Rate

News that the US and Canada have reached a deal to replace NAFTA did not give the US Dollar (USD) much cause for celebration.

This easing in trade tensions boosted market risk appetite on Monday morning, leaving USD on a weaker footing against its more risk-sensitive rivals.

As forecasts point towards an easing in September’s ISM manufacturing index investors saw little reason to favour the US Dollar at this juncture.

While the index is expected to remain firmly within expansion territory any loss of momentum is still likely to disappoint investors in the short term.

With the US and China still at odds over trade the economy is still expected to come under pressure as a result of the Trump administration’s trade tariffs, to the detriment of the US Dollar.

US Dollar (USD) Forecast to Rally on Falling Unemployment Rate

Confidence in the US Dollar may pick up once again ahead of the weekend, however, if September’s non-farm payrolls data proves positive.

Markets expect to see the unemployment rate fall from 3.9% to 3.8% on the month, signalling that the US labour market has continued to tighten.

Even so, if the accompanying wage data fails to impress this could offer the GBP/USD exchange rate a fresh rallying point.

Weaker wage growth could give the Federal Reserve cause for pause, reducing the likelihood of the central bank tightening monetary policy further in the months ahead.

Weaker Service Sector Growth to Hamper Pound Sterling (GBP) Exchange Rates

Wednesday’s UK services PMI may provoke greater volatility for the Pound Sterling to US Dollar (GBP/USD) exchange rate, meanwhile.

As the service sector remains the primary driving force of the UK economy any signs of weakening could dent confidence in the domestic outlook, outweighing the positive manufacturing PMI.

Concerns over growth and the resilience of the domestic economy may find fresh fuel if the service sector losses further momentum during the third quarter, exposing the Pound to additional downside pressure.

 

As long as the threat of a hard or no-deal Brexit continues to hang over the UK economy any soft domestic data is likely to leave the Pound Sterling to US Dollar (GBP/USD) exchange rate trending lower.

Hannah Wilson

Contact Hannah Wilson


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