GBP/USD Extends Gains as US Manufacturing Growth Slows to Two-Year Low

GBP/USD Exchange Rate Accelerates Following US PMI Figures

UPDATE: The Pound Sterling to US Dollar (GBP/USD) exchange rate continued to accelerate this afternoon pushing towards $1.31 following the release of the latest US PMI figures.

The ISM manufacturing PMI reported that US factory growth slowed to a two-year low in April as the index tumbled from 55.3 to 52.8, well below the modest drop to 55 that had been forecast by economists.

At the same time the Pound continued to be buoyed by Brexit optimism on signs cross-party talks may be making some progress.

GBP/USD Exchange Rate Buoyed as Markets Brace for Fed Rate Decision

UPDATE: The Pound Sterling to US Dollar (GBP/USD) exchange rate struck a new one-week high on Wednesday, trading as high as $1.3077 ahead of the Federal Reserve’s policy decision later this afternoon.

However the pairing was unable to hold at these levels for long, with USD exchange rates recouping some ground in the afternoon after the ADP employment figures reported that private sector payrolls surged by 275,000 in April, easily beating forecasts of a more modest rise of 180,000.

Meanwhile the Pound was buoyed on Wednesday by renewed Brexit optimism, stemming from reports that Theresa May is preparing to give into Labour demands to remain in a customs union with the EU.

GBP/USD Exchange Rate Stable Following UK Manufacturing PMI

The Pound Sterling to US Dollar (GBP/USD) exchange rate remains steady this morning as the pairing consolidates its recent gains in spite of slowing UK manufacturing.

At the time of writing the GBP/USD exchange rate is drifting higher again this morning, propelling the pairing to around $1.3071 on the inter-bank market.

Pound (GBP) Buoyed Despite Factory Slowdown

The Pound (GBP) held steady against the US Dollar (USD) and the majority of its other peers this morning as markets appeared to largely shrug off a slowdown in UK factories last month.

According to data published by IHS Markit, the UK’s manufacturing index stumbled from 55.1 to 53.1 in April, with growth in the factory sector slowing to a two-month low.

The slowdown appeared to be driven by weak overseas demand, with analysts suggesting that Brexit concerns saw international clients begin to re-route their supply chains away from the UK.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said:

‘As Brexit prevarication continued, overseas clients took to action and found new supply chain routes away from the UK resulting in the second-fastest drop in new export orders in four-and-a-half years.

‘The mild rise in domestic orders was unable to meet this significant shortfall in business and with the extended Brexit deadline, the levels of stockpiling slowed as UK manufacturers turned their attention to building efficiencies instead.’

US Dollar (USD) to Stumble if Fed Remains Cautious?

At the same time, the US Dollar (USD) is stuck trading in a narrow range this morning ahead of the Federal Reserve’s rate decision later this evening.

Given that the Fed’s previous policy statement reinforced the bank’s commitment to ‘patience’ in regards to monetary policy this year, any changes this month appear highly unlikely.

This will also likely see the Fed ignore Donald Trump’s call for it to cut interest rates, as he accuses the privately-run banking organisation of undermining his attempts to boost US economic growth.

However, we could still see the US Dollar weaken in the wake of this evening’s rate decision if, in the following press conference, Fed Chair Jerome Powell maintains his cautious outlook for the remainder of the year despite a surprising strong first quarter US GDP print.

GBP/USD Exchange Rate Forecast: Upbeat BoE Outlook to Bolster Sterling?

Looking past the Fed’s rate decision, the main catalyst of movement in the Pound US Dollar (GBP/USD) exchange rate throughout the second half of the week is likely to be the conclusion of the Bank of England’s (BoE) own policy meeting on Thursday.

Like the Fed, the BoE is expected to leave monetary policy untouched in May as it remains paralyzed by Brexit uncertainty.

However we may still Sterling edge higher following the BoE’s rate decision, with the bank potentially offering a more hawkish outlook for the UK economy in light of recent data, particularly February’s robust GDP figures.

Meanwhile, the focus for USD investors will turn to the latest US payroll figures at the tail end of the week, with the US Dollar potentially strengthening if wage growth rebounded as expected in April.

Matthew Andrews

Contact Matthew Andrews