‘Devastating’ UK Construction Data Sends Pound Sterling US Dollar (GBP/USD) Exchange Rate Lower

Pound US Dollar (GBP/USD) Exchange Rate Falls as UK Construction Demand Plummets at Fastest Pace in a Decade

The Pound Sterling US Dollar (GBP/USD) exchange rate slumped on Wednesday with the pairing currently trading at around $1.2259.

Construction activity in September declined at the second-fastest pace since April 2009 while employment within the sector was cut by the greatest extent since December 2010.

Markit’s construction PMI slumped from 45 to 43.3 causing Sterling to slide against the Dollar.

Last month saw construction demand fall at the steepest pace since March 2009, and September’s data offers little hope for a recovery.

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

‘The construction sector offered another devastating result in September with the second fastest fall in new orders since March 2009 and the financial crisis. After a relentless six-month decline in order books driven by Brexit uncertainty and political indecision, this is hardly surprising.

‘Looking ahead the signs do not look positive. Even a moderation in input prices since March 2019 and some moderate improvement in supply chain pressures will not be enough to keep the wolf from the door as no-deal looms and businesses remain Brexit unsteady.’

US Dollar (USD) Under Pressure as Manufacturing Activity Plummets to 10-Year Low

The US Dollar was left under pressure on Wednesday as market forecasts for a slowdown in third quarter economic growth intensified fears for an American recession.

Predictions for more Federal Reserve rate cuts also limited the appeal of the ‘Greenback’.

September saw lingering trade tensions weigh on exports, causing manufacturing activity to plummet to a more than 10-year low.

The Institute for Supply Management’s (ISM) manufacturing PMI was dragged deeper into contraction despite market expectations that the index would claw its way back to growth.

While September’s US Markit manufacturing PMI edged up to a five-month high, fears for an extended manufacturing recession left the Dollar under pressure.

Commenting on the data, Markit’s Chief Economist, Chris Williamson noted:

‘News of the PMI hitting a five-month high brings a sigh of relief, but manufacturing is not out of the woods yet. The September improvement fails to prevent US goods producers from having endured their worst quarter for a decade. Given these PMI numbers, the manufacturing recession appears to have extended into its third quarter.’

Investors see the weak manufacturing data as a bad omen for Friday’s labour figures, and commenting on this, BNY Mellon analysts said in a note:

‘This reinforces our view that while the Fed is still stubbornly clinging to its view that rates are currently appropriate […] it will ultimately have to accept that the pillars of support – the labour market and the consumer – are weakening.’

Sterling (GBP) Slumps Ahead of PM’s ‘Final’ Offer

The Pound was sent back towards a one-month low against the Dollar as traders grow increasingly jittery in the countdown to the Brexit deadline.

Sterling continued to slide this morning, with investors unimpressed by news that Prime Minister Boris Johnson had struck a secret deal with the Democratic Unionist Party (DUP).

The British premier is due to give his headline speech at the Conservative Party conference today in which the details of his ‘final’ offer to the EU for a ‘fair and reasonable’ Brexit compromise should be revealed.

The government have insisted they will not be working on a Brexit delay, with a senior official stating:

‘The government is either going to be negotiating a new deal or working on no-deal – nobody will work on delay.’

Pound US Dollar Outlook: Will a Disappointing Services PMI Send GBP Lower?

Looking ahead to this afternoon, the US Dollar (USD) is likely to edge up against the Pound (GBP) following the release of ADP’s employment data.

The ‘Greenback’ could be provided with an upswing of support if employment change jumped higher than forecast in September, signaling the non-farm payrolls is likely to increase at the end of the week.

Meanwhile, Sterling could slide following the release of Thursday’s UK services PMI if growth in the service sector continues to slow.

Millie Empson

Contact Millie Empson