Pound US Dollar Exchange Rate Rallies as UK Service Sector Narrowly Avoids Contraction in December

GBP/USD Exchange Rate Strengthened by Revised UK Services PMI

The Pound Sterling to US Dollar (GBP/USD) exchange rate is trending higher this morning, bolstered by a stronger-than-expected final UK services PMI in December.

At the time of writing the GBP/USD exchange rate is trading at around $1.3146, up roughly 0.4% from this morning’s opening levels.

Pound (GBP) Accelerates as UK Services PMI Beats Expectations

The Pound (GBP) is trending higher against the US Dollar (USD) and the majority of its other peers this morning after the UK’s services PMI for December was unexpectedly revised higher.

According to the final figures published by IHS Markit this morning, the services index came in at 50.0 last month, rising from 49.3 in November and beating December’s preliminary estimate of 49.2.

Analyst attributed the upwards revision in growth to a rise in optimism following the UK general election.

While GBP investors will welcome the news that the UK’s all-important service sector avoided a contraction last month, the fact that the sector hasn’t seen any growth since August will stoke concerns the UK economy stagnated at the end of 2019.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said:

‘A marginally less volatile picture emerged in December as the sector was rescued by a small uplift in new orders for the first time since August, elevating it out of its doldrums, but only just.

‘Any improvement in the sector’s fortune is of course welcome, but this small improvement to the no change mark means stagnation is also a possibility.’

US Dollar (USD) Muted amidst US-Iran Sabre Rattling

At the same time, the US Dollar (USD) is trading on the back foot at the start of this week’ session as markets take stock of the situation in the Middle East.

Tensions in the region have flared in recent days after a US air strike in Iraq killed Iranian General, Qassem Suleimani, for which Iran has vowed to retaliate.

In the days since the killing we have seen tensions between the US and Iran continue to escalate with Donald Trump and Iran’s supreme leader, Ayatollah Khamenei trading threats.

While the resulting slump in risk sentiment would traditionally buoy the safe-haven US Dollar, USD investors appear jittery given the sabre rattling by both sides.

GBP/USD Exchange Rate Forecast: Robust US Service Sector to Buoy the US Dollar?

Looking ahead, the Pound to US Dollar (GBP/USD) exchange rate may come under some pressure on Tuesday with the publication of the ISM non-manufacturing PMI.

Economists forecast this will show growth in the US service sector expanded at a robust pace in December, with the index predicted to rise from 53.9 to 54.5.

However any uptick in the US Dollar could be tempered by the accompanying US factory order figures, on the expectation they will show order growth contracted in November.

In the absence of any notable UK economic data, GBP investors are likely to look to potential Brexit developments for further impetus in Sterling.

Of particular focus for markets will be a meeting between Boris Johnson and European Commission President, Ursula von der Leyen on Wednesday, in which the pair may discuss the next steps of the Brexit process.

Matthew Andrews

Contact Matthew Andrews