Pound US Dollar (GBP/USD) Exchange Rate Jumps as US Signals Lack of Urgency Over China Trade Deal

Trump Trade Comments Spur Pound Sterling US Dollar (GBP/USD) Exchange Rate Leap

The latest US comments on trade saw the Pound Sterling to US Dollar (GBP/USD) exchange rate extending its upward trend today.

Markets were caught off guard by the suggestion that the Trump administration is in no hurry to agree a trade deal with China and could hold off on an agreement until after the 2020 election.

While this does not bode well for the global trade outlook, especially on the heels of freshly announced tariffs on French produce, the mood towards the US Dollar (USD) still soured.

Rather than benefitting from an increase in market risk aversion USD exchange rates came under pressure thanks to resurgent worries over the outlook of the US economy.

As existing trade tensions have already shown signs of dragging on US growth investors saw little incentive to favour the US Dollar in the wake of these latest belligerent trade signals.

UK Construction Contraction Limits Pound Sterling Upside

Although the finalised UK construction PMI confirmed that the sector remained deep in contraction territory in November this failed to dent the GBP/USD exchange rate.

As the impact of the underwhelming construction sector performance had already been priced into Pound Sterling (GBP) the potential for further losses was limited.

Developments in the polls also helped to shore up the Pound this morning, with markets reacting positively to signs of Conservative support.

However, the mood of GBP exchange rates could easily sour tomorrow on confirmation that the UK services PMI weakened last month.

GBP/USD Exchange Rate Remains Vulnerable to UK Services PMI

Confidence in the outlook of the UK economy is unlikely to see any improvement on Wednesday unless the services PMI proves stronger than forecast.

If the index confirms that the service sector experienced a sharp contraction in November the Pound may struggle to hold onto a positive footing against its rivals.

As the service sector remains the primary engine of UK economic activity investors are unlikely to shrug off another weak print here, in spite of the underwhelming nature of the initial estimate.

With little over a week now left before the early general election GBP exchange rates look set to come under increasing pressure, regardless of the nature of the polls.

Signs of Non-Manufacturing Strength Set to Boost US Dollar Demand

Support for the US Dollar could pick back up on the back of November’s ISM non-manufacturing index, however.

Another strong monthly performance for the US service sector would go some way towards offsetting the impact of the latest bout of trade tensions.

Even with the manufacturing sector struggling to recover its lost momentum a strong services index could still encourage investors to pile back into the US Dollar tomorrow.

If the prospect of extended US-China trade uncertainty encourages a greater sense of market anxiety this may also benefit USD exchange rates as safe-haven demand picks up.

Louisa Heath

Contact Louisa Heath