Pound to US Dollar (GBP/USD) Exchange Rate Dips Despite Growing Hopes for UK Manufacturing Sector

GBP/USD Exchange Rate Falls as UK Economic and Post-Brexit Uncertainty Weighs on Sterling

The Pound to US Dollar (GBP/USD) exchange rate fell by -0.2% today after the UK’s CBI Industrial Trends Survey fell to a worse-than-expected -46%. The pairing is currently trading around $1.270.

However, GBP investors are becoming more hopeful that the UK’s manufacturing sector could be on the path to recovery. Consequently, there is a returning glimmer of hope for Britain’s economy.

Tom Crotty, Group Director at the major chemicals company INEOS, commented on today’s report:

‘The latest survey showcases the significant challenges that manufacturers have faced over the last three months due to the COVID-19 crisis. However, these results may prove to be a low point in the crisis, with manufacturers expecting output to grow for the first time since the pandemic hit.’

Meanwhile, Brexit doubts have held down Sterling following yesterday’s reports that Downing Street was preparing to leave the European Union (EU) on World Trade Organisation (WTO) terms.

Nevertheless, today saw British Government dispel fears that the UK was prepared for a hard-Brexit. Prime Minister Boris Johnson’s spokesperson said:

‘Our preference is to leave with an FTA [free trade agreement] as long as it guarantees our political and economic independence. But we will make sure that we’re prepared for all possible scenarios.’

US Dollar (USD) Edges Higher Despite Fears Over America’s Covid-19 Situation

The US Dollar (USD) continued to struggle against many of its peers today following a recent rise in risk-sentiment. As a result, investors flocked to riskier assets as hopes continue to grow for the global economy’s recovery from the Covid-19 crisis.

Also limiting the appeal of the US Dollar is the number of Covid-19 cases in America. Furthermore, doubts are beginning to rise over further fiscal stimulus, with the political wrangling between the Republicans and the Democrats eclipsing the nation’s economic situation and future.

David Madden, an analyst at CMC Markets, also highlighted tensions between US and China, saying:

‘Recently, the relationship between the two largest economies in the world has been strained because the Chinese government is eroding Hong Kong’s autonomy, and that has attracted the anger of many countries.’

‘Nonetheless, dealers dropped stocks as they were coming from a relatively strong position on the back of the €750 billion rescue fund deal from the EU, and the hopes for a Covid-19 vaccine.’

In US economic news, today will see the release of the latest US Initial Jobless claims for July. Any improvement in America’s struggling employment sector would benefit the ‘Greenback’.

GBP/USD Outlook: Could a Strong UK Services PMI Buoy Sterling Tomorrow?

Pound (GBP) traders will be awaiting tomorrow’s release of the flash UK Services PMI for July. Any improvement in the UK’s largest sector could buoy the GBP/USD exchange rate.

Tomorrow will also see the release of the latest UK retail sales for June. If these improve, then we could see Sterling benefit from rising hopes for Britain’s economic recovery.

USD investors will also be paying close attention to tomorrow’s release of the US Composite PMI figure. Any improvement could improve investor appetite for the ‘Greenback’.

The GBP/USD exchange rate will also remain overly sensitive to risk sentiment. So, any improvement in US-China trade relations could weigh on safe-haven demand and weaken the US Dollar.

David Moore

Contact David Moore


Related