GBP/USD Exchange Rate Steady as Risk-On Mood Drags on US Dollar Safe-Haven
The Pound to US Dollar (GBP/USD) exchange rate held steady today, with the pairing currently trading around $1.25.
The US Dollar (USD) continued to suffer from a wave of global economic optimism today, with investors seeking out riskier assets after China’s services sector hit a near 10-year high last month.
Global markets appear to have shrugged off the growing conflict in the US after the killing of George Floyd, while US-China trade tensions seem to have temporarily come to a standstill.
As a result, this week’s risk-on phase has been extended, weakening demand for safe-haven assets like the ‘Greenback’.
Mazen Issa, a senior currency strategist at TD Securities, commented:
‘The good times continue to roll in risk markets.’
‘As intense as the rally has been, this is likely set to continue as the breadth of the equity rally has now spread outside the U.S.’
Meanwhile, today will see the release of the US ADP Employment Change report for May, which is expected to improve from -20,236 thousand to -9,000 thousand. However, with US employment data being overall negative, this is likely to weigh on the US Dollar.
Today will also see the release of the US ISM Non-Manufacturing PMI for May. With the figure expected to remain in contraction territory, we could see the ‘Greenback’ continue to suffer.
Pound (GBP) Steady as UK Services PMI Paints ‘Deeply Concerning Picture’
The GBP/USD exchange rate failed to gain today despite the UK Markit Services PMI for May beating forecasts. However, with the figure deeply lodged in contraction territory at 29, this failed to buoy demand for Sterling.
Duncan Brock, the Group Director at the Chartered Institute of Procurement and Supply, commented on the data:
‘May’s survey data painted a deeply concerning picture of a lockdown slowdown across the service sector as employment dropped at the second fastest rate on record, pipelines of new work were woefully empty and business confidence continued to suffer.’
Meanwhile, Labour leader Keir Starmer has accused Prime Minister Boris Johnson of collapsing public confidence in the Government’s handling of the coronavirus. As a result, some Pound (GBP) traders are becoming increasingly concerned about a second-wave of Covid-19 further ravishing the British economy.
Mr Starmer said:
‘We’ve called for an exit strategy. What we appear to have got is an exit without a strategy. We want to see society reopen, we want to see more children back at school, obviously people want to see their families and we want to see businesses open.’
‘But like many people across the country, there is a growing concern the government is now winging it. At precisely the time when there should have been maximum trust in the government, confidence has collapsed.’
GBP/USD Outlook: Could US-China Trade Tensions Boost the Safe-Haven US Dollar?
Pound (GBP) investors will be awaiting tomorrow’s release of the UK Construction PMI for May. However, with the figure forecast to improve from to 29.7, we could see Sterling rise as the UK’s economy improves.
US Dollar (USD) traders will be looking ahead to tomorrow’s release of the latest US nonfarm productivity figures. Any further deterioration in the US economy would prove USD-negative.
Tomorrow will also see the release of May’s US Initial Jobless Claims report. Any signs of US unemployment remaining at record highs would also drag down the US Dollar.
The GBP/USD exchange rate could edge higher this week if the ‘Greenback’ continues to struggle with the extended risk-on phase. However, any signs of US-China trade tensions erupting would benefit the safe-haven US Dollar.