Pound US Dollar (GBP/USD) Exchange Rate Slips on Lack of UK Services Growth

Stagnant UK Service Sector Puts Pressure on Pound Sterling US Dollar (GBP/USD) Exchange Rate

As the UK service sector stagnated in October worries over the outlook of the wider economy persisted, to the detriment of the Pound Sterling to US Dollar (GBP/USD) exchange rate.

Although forecasts had pointed towards another month of contraction from the PMI investors failed to take any encouragement from the stagnant reading of 50.

With the service sector struggling to find momentum the economy appears on track for an underwhelming fourth quarter gross domestic product result.

As Chris Williamson, Chief Business Economist at IHS Markit, noted:

‘The October reading is historically consistent with GDP declining at a quarterly rate of 0.1%, similar to the pace of contraction in GDP signalled by the surveys in the third quarter. While official data may indicate more robust growth in the third quarter, the PMI warns that some of this could merely reflect a pay-back from a steeper decline than signalled by the surveys in the second quarter, and that the underlying business trend remains one of stagnation at best.’

Hopes of US-China Trade Breakthrough Weigh on USD Exchange Rates

Mounting hopes of the US and China agreeing a preliminary trade deal in the coming days saw the US Dollar (USD) falter this morning, dented by the general improvement in market risk appetite.

Although the US economy has shown signs of slowing in the face of ongoing trade tensions, raising the risk of a weaker gross domestic product, heightened safe-haven demand had shored up USD exchange rates.

The mood towards the US Dollar could pick up this afternoon, however, if September’s trade balance shows a narrowed deficit.

Evidence that trade conditions improved at the end of the third quarter, in spite of the lack of resolution to the US-China trade dispute, may encourage USD exchange rates to trend higher across the board.

On the other hand, if the deficit widens further this could fuel market anxiety as the drag on US economic momentum looks set to increase.

Lack of BoE Policy Action Unlikely to Reassure Pound Sterling

The GBP/USD exchange rate could see further losses on Thursday, even though no change in interest rates is expected from the Bank of England’s (BoE) November policy meeting.

While rates look set to remain on hold the nature of the accompanying meeting minutes may put renewed pressure on the Pound.

With the BoE’s hands still effectively tied in the face of the latest Brexit deadline extension, though, the negative impact of any signs of policymaker dovishness could ultimately prove limited.

As campaigning for the upcoming general election continues to intensify this may put a limit on the upside potential of the GBP/USD exchange rate, though.

Federal Reserve Commentary Set to Dent US Dollar

Fresh commentary from Federal Reserve policymakers could provoke volatility for USD exchange rates over the course of the week, meanwhile.

With the White House continuing to push for more aggressive interest rate cuts investors are keen to gauge the current outlook among Fed officials.

If there are any increased signs of caution among policymakers this could raise the odds of further rate cuts to come in 2020, to the detriment of the US Dollar.

However, evidence of greater resistance to the idea of looser monetary policy within the central bank could see the appeal of the US Dollar improve, denting the GBP/USD exchange rate.

Louisa Heath

Contact Louisa Heath