GBP/USD Exchange Rate Firms on Gloomy US Data
Updated: The Pound Sterling to US Dollar (GBP/USD) exchange rate clung to its modest gains this afternoon as markets reacted to some disappointing second tier US data.
The Chicago PMI and the Dallas Fed Manufacturing Business Index both underperformed in September, with a shock contraction in the Chicago Business Barometer proving particularly negative for the US Dollar.
September’s Chicago PMI fell to 47.1 from 50.4 in August (< 50 consensus) … next up, Dallas Fed later this morning pic.twitter.com/DBvVLVh5Ex
— Liz Ann Sonders (@LizAnnSonders) September 30, 2019
Meanwhile the Pound sought to consolidate its earlier gains absence any positive Brexit developments that may have helped Sterling to press its advantage.
GBP/USD Exchange Rate Buoyed by UK GDP Figures
The Pound Sterling to US Dollar (GBP/USD) exchange rate is trending higher this morning as markets responded to the UK’s latest GDP release.
At the time of writing the GBP/USD exchange rate is trading at around $1.2325, up around 0.3% from this morning’s opening rate.
Pound (GBP) Ticks Up on Revised Annual Growth Figures
The Pound (GBP) is enjoying a positive start to this week’s session, drifting higher against the US Dollar (USD) and the majority of its other peers following the publication of the UK’s latest GDP figures.
In its final release for the second quarter, the Office for National Statistics (ONS) confirmed that UK economic growth contracted by 0.2% quarter-on-quarter.
However its accompanying annualised release made for more positive reading, with Q1 growth being revised up to 0.6%, lifting the annual growth rate up from 1.2% to 1.3% and boosting the appeal of Sterling.
#UK #GDP confirmed contracting 0.2% quarter-on-quarter in second quarter after upwardly revised growth of 0.6% q/q in Q1. Year-on-year growth slowed to 1.3% in Q2 from 2.1% in Q1. #Economy suffered payback in Q2 from stockbuilding in Q1 ahead of original late-March #Brexit date
— Howard Archer (@HowardArcherUK) September 30, 2019
The ONS reported that this bump in the first quarter came from Brexit stockpiling, causing second quarter growth to suffer as these inventories were sold off.
‘There is evidence that stockpiling was taking place in the first quarter of the year, which would have provided a boost to GDP, and that these increased stock levels were then run down in Quarter 2.’
However it remains to be seen if the Pound will be able to hold on to these gains, as Brexit uncertainties continue to weigh on sentiment.
Safe-Haven Demand Benefits the US Dollar (USD)
Meanwhile, the US Dollar (USD) was able to limit its losses against the Pound (GBP) this morning as a cautious mood in markets helped to underpin demand for the safe-haven currency.
This comes amid rumours that Washington was considering placing new limits on Chinese investment in the US.
While the reports were refuted by the White House, the headlines were enough to spook markets and cause investors to extend their positions in the US Dollar.
GBP/USD Exchange Rate Forecast: Gloomy UK PMI Figures to Pressure Sterling?
Coming up tomorrow we may see the Pound US Dollar (GBP/USD) exchange rate give up some ground following the publication of the UK’s manufacturing PMI figures.
These are expected to show that growth in the factory sector continued to contract in September, having already fallen to a seven-year low in August.
However, there remains a strong chance that these figures could be side-lined by UK political developments, with headlines surrounding the Tory party conference and a potential vote of no-confidence in the government, possibly injecting some fresh volatility into Sterling.
For USD investors the focus in the first half of the week is likely to be on the release of the ISM manufacturing PMI on Tuesday afternoon.
A shock contraction in the US factory sector in August fed into speculation that the US could be headed towards a recession, so expect to see the US Dollar face some pressure if September’s reading paints a similar picture.