GBP/USD Exchange Rate Improves as US Business Confidence Falls

Pound US Dollar (GBP/USD) Exchange Rate Rises as US Business Expectations Slide to 35-Month Low

UPDATE: The Pound Sterling US Dollar (GBP/USD) exchange rate remains on the up and the pairing is currently trading at an inter-bank rate of $1.2718.

On Wednesday afternoon the US Markit services PMI registered at 50.9 in May, down from April’s reading of 53.

The survey found that business expectations had slipped to their lowest since June 2016 and input cost inflation was at its weakest since September 2016.

The PMI composite also dipped down to 50.9, dampening sentiment in the ‘Greenback’.

Commenting on the findings, Chris Williamson, Chief Business Economist at IHS Markit said:

‘The final PMI data for May adds to worrying signs about the health of the US economy. With the exception of February 2016, business reported the weakest expansion for five and a half years as a trade-led slowdown continued to widen from manufacturing to services.

‘Inflows of new business showed the second-smallest rise seen this side of the global financial crisis as the steepest fall in demand for manufactured goods since 2009 was accompanied by a further marked slowdown in orders for services.’

Pound US Dollar (GBP/USD) Exchange Rate Edges Up on Disappointing US Jobs Data

UPDATE: The Pound Sterling US Dollar (GBP/USD) exchange rate has risen around 0.3% since this morning and the pairing is currently trading at an inter-bank rate of $1.2733.

Data revealed that US job creation plummeted to a post-crisis low.

May’s ADP employment change rose by a lower-than-forecast 27,000, down from April’s rise of 275,000.

ADP reported that small US businesses axed 52,000 jobs last month, while small firms hired 11,000 people.

This dampened sentiment in the ‘Greenback’ as it provided further proof that the US economy has slowed this year.

Brexit Headwinds Continue to Hit the UK Services Sector, Pound US Dollar (GBP/USD) Exchange Rate Flat

The Pound Sterling US Dollar (GBP/USD) exchange rate remains muted and the pairing is currently trading at an inter-bank rate of $1.2717.

This morning’s data release revealed the UK services PMI had risen to a higher-than-forecast 51 in May, up from 50.4 in April.

The figures also revealed that new work rose for the first time since December 2018, and there was a slight improvement in underlying business conditions.

While May saw the slowest rise in input costs for 12 months, Brexit uncertainty remained a headwind to growth and analysts remained concerned about the UK economy.

Commenting on the data, Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply, said:

‘All in all, the sector is still suffering a potent cocktail of depressed demand and uncertainty. Even the biggest rise in optimism since September 2018 and more staff hires are unlikely to be enough for the sector to put in an average performance in the coming months let alone open the floodgates to pre-referendum rates of business expansion.’

US Dollar (USD) Exchange rates Under Pressure from Fed Interest Rate Cut Speculation

On Tuesday, US Dollar (USD) exchange rates came under pressure as US Federal Reserve Chair Jerome Powell hinted that the central bank was prepared to cut interest rates.

Speaking at a monetary policy conference in Chicago, Powell said the Fed was prepared to act if the Trump administration’s tariff actions against Mexico and China threatened the US economy, saying:

‘We don’t know how or when these issues will be resolved … As always, we will act as appropriate to sustain the expansion, with a strong labour market and inflation near out symmetric 2% objective.’

While Powell’s comments did not explicitly state the Fed would be slashing interest rates, his comments sent a signal a rate cut could be in the future.

The comments come just a day after the US Markit manufacturing PMI dropped to the lowest level in close to a decade and helped the Pound Sterling to US Dollar (GBP/USD) exchange rate stand firm.

Pound US Dollar (GBP/USD) Exchange Rate Outlook: Will Disappointing Non-Farm Productivity Dampen USD?

This afternoon the US Dollar (USD) could slip against the Pound (GBP) following the release of the US ISM non-manufacturing PMI.

If data shows the PMI has followed the manufacturing sector and edged lower than forecast, the ‘Greenback’ could slide.

Looking ahead to Thursday the US Dollar could extend losses against Sterling following the release of the US non-farm productivity figures.

If non-farm productivity does not rise as high as expected in the first three months of 2019, the Pound US Dollar (GBP/USD) exchange rate could rise.

Millie Empson

Contact Millie Empson