An underwhelming UK services PMI saw the GBP/USD exchange rate lose its footing on Friday, ceding some of its weekly gains as confidence in the economic outlook dimmed.
Last Week: Slowing UK Services PMI Weighs on Pound
As UK and EU officials returned to the negotiating table this helped to put a floor under the Pound last week, in spite of the lack of imminent deal.
However, the GBP/USD exchange rate was unable to hold onto a stronger footing ahead of the weekend as October’s UK services PMI fell short of forecast.
While the index remained in a state of expansion investors were still disappointed to see it dip from 56.5 to 52.9 on the month, suggesting a loss of momentum within the sector.
Even still, with a sense of increasing political anxiety hanging over the US the downside potential of the GBP/USD exchange rate ultimately proved limited.
Three Things to Watch out for This Week
1. UK CBI Distributive Trades Index
Worries over the underlying health of the UK economy could pick up further this week if October’s CBI distributive trades index weakens as forecast.
Evidence of weakening activity within the retail sector would add to existing doubts over the economic outlook, raising the risk of a weaker fourth quarter gross domestic product.
2. US Durable Goods Orders
The mood towards the US Dollar could improve on Tuesday on the back of an uptick in the September durable goods orders figure.
As long as orders show signs of growth on the month this could help to encourage greater confidence in the resilience of the US economy, even in the face of political tensions.
3. US Gross Domestic Product
Greater volatility is likely in store for the GBP/USD exchange rate with the release of the third quarter US gross domestic product report.
A solid quarterly uptick in growth, following on from the second quarter economic contraction, could see the US Dollar pushing sharply higher across the board.
GBP/USD Outlook
Signs of strength within the US economy may see the GBP/USD exchange rate struggling to find traction this week, in spite of mounting tensions ahead of next week’s presidential election.