Pound US Dollar (GBP/USD) Exchange Rate Slumps as US Business Activity Growth Jumps to Four-Month High

Pound Sterling US Dollar (GBP/USD) Exchange Rate Falls as US Manufacturing Output Rises to Seven-Month High

The Pound Sterling US Dollar (GBP/USD) exchange rate slumped by around -0.5%, leaving the pairing trading at around $1.2844.

On Friday afternoon, the US flash PMI composite revealed that business activity growth quickened this month, rising from 50.9 in October to 51.9.

This was a four-month high and individual measures showed manufacturing output jumped to a seven month high while services rose to a four-month high, which likely supported the ‘Greenback’.

Commenting on today’s data, Markit’s Chief Business Economist, Chris Williamson said:

‘A welcome upturn in the headline index from the flash PMI adds to evidence that the worst of the economy’s recent soft patch may be behind us. Output of the combined manufacturing and service sectors rose in November at the fastest rate since July, spurred by improved inflows of new business. Encouragingly, firms took on staff again after two months of headcount reductions, primarily to help deal with rising backlogs of work.

‘Although up on lows seen in the summer, business expectations for the future are still well below levels seen earlier in the year, reflecting heightened anxiety regarding trade wars and geopolitical uncertainty, as well as recent low customer enquiry numbers and the weakness of new sales volumes.’

UK Services PMI Plummets to 40-Month Low

The pairing slumped on Friday morning after data revealed that UK private sector output suffered the largest fall since July 2016.

Both manufacturing and service sector growth slumped, with the manufacturing downturn worsening, and the services PMI hitting a 40-month low.

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

‘With the longest stretch of weak numbers for a decade, the headline figure is a sad sight to behold. New orders fell at the fastest pace since July 2016, as domestic and overseas clients, worn-out by continuing political indecision withdrew from the marketplace, reducing overall activity in the manufacturing and services sectors.

‘There was some light relief from softer inflationary pressure. The weak Pound has gathered a modicum of strength making raw materials a little more affordable, but there was no such respite for consumers.

‘With a General Election added to the Brexit mix of general uncertainty and delayed decision making, it would be a brave commentator who would suggest the possibility of any Christmas cheer as we head into the last month of the year.’

US Dollar (USD) Rises as China’s Xi Wants to Work Towards ‘Phase One’ Deal

The US Dollar rose against the Pound on Friday as currencies traded in tight ranges after mixed messages on US-China trade negotiations.

After a week of mixed signals on the likelihood of Washington and Beijing signing a ‘phase one’ trade deal, the latest news did little to move markets.

Chinese President Xi Jinping said on Friday that China wants to work towards a deal with the United States, and has been trying to avoid a trade war.

Speaking to representatives of an international forum, Xi stated:

‘We want to work for a ‘phase one’ agreement on the basis of mutual respect and equality.

‘When necessary we will fight back, but we have been working actively to try not to have a trade war. We did not initiate this trade war and this is not something we want.’

Commenting on this in a note to clients, Commerzbank FX and EM analyst, Hao Zhou wrote:

‘While there are many trade headlines over the past few days, one can also argue that this is actually a ‘status quo’.

‘At the end of the day, there is little progress on trade talks, and it looks like both sides are fine with another delay of the phase one deal.’

Pound US Dollar Outlook: Will GBP Rise on UK Election Optimism?

Looking ahead to next week, the Pound (GBP) could edge up against the US Dollar (USD) as political polls continue to show the Tories are ahead of Labour.

If opinion polls continue to show increased support for the Conservative Party, Sterling sentiment will rise.

Meanwhile, the ‘Greenback’ could suffer losses following the release of the Chicago Fed National Activity Index.

If October’s index slumps further than expected, it could cause the Pound US Dollar (GBP/USD) exchange rate to rise at the start of the week.

Millie Empson

Contact Millie Empson