Pound US Dollar (GBP/USD) Exchange Rate Flat despite UK Economy on Course to Shrink by 7%

Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted as UK Services Suffers Steep Decline

The Pound Sterling US Dollar (GBP/USD) exchange rate remained flat this morning, trading at around $1.2437.

The Pound remained flat against the Dollar this morning, following the release of disappointing PMI data.

Data showed the country’s service sector saw a sharp decline in activity, employment, and new work. Added to this, it was the first time since the survey began in 1996 that input costs feel.

Britain’s services PMI fell from March’s 34.5 to 13.4 in April. While this was slightly better than the earlier flash estimate of 12.3, it was still a sharp decline.

Commenting on this morning’s data, Markit’s Economics Director, Tim Moore noted:

‘April’s PMI data highlights that the downturn in the UK economy during the second quarter of 2020 will be far deeper and more widespread than anything seen in living memory.

‘Historical comparisons of the PMI with GDP indicate that the April survey reading is consistent with the economy falling at a quarterly rate of approximately 7%, but we expect the actual decline in GDP could be even greater, in part because the PMI excludes the vast majority of the self-employed and the retail sector.’

US Dollar (USD) Left Flat as Risk Appetite Improves

However, the Pound remained flat against the US Dollar as risk sentiment recovered slightly on Tuesday.

Although, the pairing was left flat as weak UK services data weighed on the British currency.

While US President Donald Trump stepped up his verbal attacks on China ahead of the November election, US officials said they were not looking to take punitive measures against Beijing.

President Trump has floated the idea of tariffs or even going back on US obligations to Beijing as retaliatory possibilities.

Commenting on the movement of GBP/USD, Viraj Patel, FX and global macro strategist at Arkera said:

‘Sterling has steadied after a sharp adjustment lower at the start of the month. The risks are still to the downside as global markets could find limited positive catalysts in May with much of the global monetary and lockdown easing sentiment priced in.

‘Any further adjustment lower would be driven by US Dollar haven flows in a broader risk-off market.’

Pound US Dollar Outlook: PMI Surveys in Focus

Looking ahead to this afternoon, the US Dollar (USD) could edge higher against the Pound (GBP) following the release of US PMI data.

If the US Federal Reserve’s preferred measure of PMI, the ISM non-manufacturing PMI plummets further below 50, risk appetite will suffer and traders will flock to the safety of the ‘Greenback’.

Meanwhile, on Wednesday Sterling could extend any losses following the release of the UK’s construction PMI.

If activity in the construction sector rapidly declines in April, sending the PMI further below 50, the Pound US Dollar (GBP/USD) exchange rate will plummet.

Millie Empson

Contact Millie Empson