GBP/USD Exchange Rate Steady in Wake of BoE Rate Decision
UPDATE: The Pound Sterling to US Dollar (GBP/USD) exchange rate is back to trading above $1.29 this afternoon as markets shrug off this morning’s weak manufacturing figures as they turn their focus to the Bank of England’s latest rate decision.
Unsurprising policymakers voted to leave rates on hold again this month citing the uncertainty surrounding Brexit continues to weigh on the bank’s outlook.
— Bank of England (@bankofengland) November 1, 2018
However the BoE noted that that UK economy has the potential to run hot next year, with the bank’s policy statement suggesting that interest rates will continue to raise at a gradual pace over the next couple of years.
GBP/USD Exchange Rate Gains Trimmed by Weak UK Factory Growth
The Pound Sterling to US Dollar (GBP/USD) exchange rate has edged back from its best levels this morning following a sharp slowdown in the UK manufacturing sector.
At the time of writing the GBP/USD exchange rate is up roughly 0.8% from its opening rate this morning, with the pairing’s gains having slowed since striking a high of 1.1% earlier in the session.
Pound US Dollar (GBP/USD) Exchange Rate Cedes Ground on Lacklustre UK Manufacturing PMI
The Pound US Dollar (GBP/USD) exchange rate initially soared this morning, gaining over 1% to break past $1.29 and strike a one-week high after reports Theresa May had stuck a deal with the EU to guarantee the UK financial sector continued access to the EU after Brexit.
However Sterling has now seen these gains trimmed following the publication of the UK’s latest manufacturing PMI.
According to data released by IHS Markit, the UK’s factory index plummeted from a downwardly revised 53.6 to 51.1 in October, falling well below the modest drop to 53 that had been forecast and striking a 27-month low.
Echoing markedly weaker #CBI industrial trends survey, disappointing news on #UK #manufacturing as #PMI survey shows activity softening in October to 27-month low (down to 51.1 from 53.8 in Sep). Output growth slowed sharply; new orders, export orders & employment all contracted
— Howard Archer (@HowardArcherUK) November 1, 2018
The slowdown appeared to be most driven by a contraction in both new orders and employment, with the uncertainty surrounding Brexit and a potential trade war between the US and China limiting demand.
Most worrying however is the warning from analysts that should this downtrend persist then the UK manufacturing sector could contract in the fourth quarter.
Rob Dobson, Director at IHS Markit said:
‘October saw a worrying turnaround in the performance of the UK manufacturing sector. At current levels, the survey indicates that factory output could contract in the fourth quarter, dropping by 0.2%.’
US Dollar (USD) Exchange Rates Slide as Risk Sentiment Rebounds
At the same time, the US Dollar (USD) is facing pressure not only against the Pound (GBP) but the majority of its currency peers this morning as demand for the safe-haven currency is clipped by a rebound in global risk sentiment.
This partly comes as a result of renewed Brexit optimism but also due to hopes that the US and China are getting close to resolving their trade dispute after US President Donald Trump spoke of a ‘great deal’ earlier in the week.
On top of this the US Dollar’s losses have likely been accentuated by a bout of profit taking as investors look to cash out following the ‘Greenback’s’ surge earlier in the week.
GBP/USD Exchange Rate Forecast: Markets Brace for BoE Rate Decision
Looking ahead, the Pound US Dollar (GBP/USD) exchange rate could be met by further volatility today as the Bank of England (BoE) delivers its latest rate decision.
Economists are not expecting any policy changes from the BoE following the conclusion of this month’s meeting as Brexit uncertainty is likely to continue to force the bank to stay its hand.
However with UK wage growth having struck a nine-year high in August we could see a more optimistic outlook from BoE Governor Mark Carney in his following press conference, potentially bolstering GBP exchange rates.
Meanwhile the US will publish its own manufacturing PMI this afternoon, with the US Dollar potentially looking to recoup some of its losses if domestic factory growth remained solid in October as expected.