Weak UK PMI Data leaves the Pound US Dollar (GBP/USD) Exchange Rate Flat

Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted despite Conservative Election Win

The Pound Sterling US Dollar (GBP/USD) exchange rate remained flat, leaving the pairing trading at around $1.3339.

Last week saw the Conservative Party secure an 80-seat majority in the general election, which continued to boost the Pound.

Earlier this morning, Sterling jumped as markets were optimistic Prime Minister Boris Johnson will deliver his Brexit deal.

This sent the UK currency towards last week’s highs. Minister Michael Gove said on Sunday Johnson would ‘get Brexit done’ by 31st January and a trade deal with the bloc by the end of 2020.

However, the pairing was left muted following weak PMI data.

Sterling (GBP) Flat as UK PMI ‘Lacked Festive Cheer’

The Pound remained under pressure following the release of UK flash PMI composite data which showed the index fell to 48.5.

Weak manufacturing sent the index to a 41-month low, with a separate reading for manufacturing output plummeting to an 89-month low.

The surveys revealed that many factors attributed to lower business activity. From a mix of Brexit uncertainty, weak global economic growth and domestic political uncertainty.

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

‘December’s PMI survey data sadly lacked festive cheer, indicating that the economy contracted for the third time in the past four months. The latest decline was the second-largest recorded over the past decade, and increases the likelihood that the economy contracted slightly in the fourth quarter as Brexit-related uncertainty intensified in the lead up to the general election.

‘Any positive aspects of the survey came largely from the sentiment indicators, with future expectations rising to the highest since June as firms hope that the election will bring clarity on the outlook and remove some of the uncertainty that has been holding back demand.’

US-China Trade Deal ‘Totally Done’

Meanwhile, on Sunday, US Trade Representative Robert Lighthizer said the ‘phase one’ trade deal between the US and China is ‘totally done’.

The deal will almost double US exports to China, although the text will need to be translated and revised.

After more than two and a half years of negotiations between Washington and Beijing, the US is set to reduce some tariffs on Chinese goods while China will increase purchases of US agricultural, energy and manufactured products.

This likely provided the ‘Greenback’ with an upswing of support, and commenting on the deal, president of the American Chamber of Commerce in Shanghai, Ker Gibbs noted:

‘For this deal, the key areas are the enforcement mechanisms and the agricultural purchases.

‘It’s a big number, and if these purchases don’t happen as planned then we could have another credibility issue that moves things backward.’

Added to this, a source in Beijing added:

‘[The deal] is a phased achievement, and does not mean that the trade dispute is settled once and for all.’

Pound US Dollar Outlook: Will Weak Employment Data Weigh on GBP?

Looking ahead to this afternoon, the US Dollar (USD) could edge up against the Pound (GBP) following the release of December’s US flash PMI.

If data reveals the service sector expanded at a faster rate than expected, it could provide the ‘Greenback’ with an upswing of support.

Meanwhile, if UK employment data disappoints on Tuesday the pairing could continue to slide.

If UK wage growth and the unemployment rate is below forecast, it will send the Pound US Dollar (GBP/USD) exchange rate lower.

Millie Empson

Contact Millie Empson