After coming under pressure at the tail end of last week the Pound to US Dollar exchange rate struggled to recover its lost traction, in spite of an upwardly revised UK manufacturing PMI.
Last Week: Rising Consumer Spending and Income Shore up US Dollar
A stronger-than-expected improvement in January’s US personal income and spending figures helped to shore up demand for the US Dollar ahead of the weekend.
Although the latest advance goods trade deficit saw a greater widening than forecast this was not enough to put pressure on USD exchange rates on Friday.
With the general sense of market risk appetite diminishing the appeal of the US Dollar widely improved, also benefitting from the solid uptick in US durable goods orders.
Increasing anxiety over trade disruptions at the UK border put renewed pressure on the Pound, meanwhile, as the prospect of increasing Brexit friction overshadowed previous Covid-19 vaccine optimism.
Three Things to Watch out for This Week
1. UK Services PMI
February’s finalised UK services PMI reading could add to the weakness of the Pound on Wednesday, with the index expected to confirm another month of sector contraction.
Unless the PMI sees an upward revision in line with the corresponding manufacturing PMI lingering worries over the weakness of the service sector look set to keep the Pound biased to the downside.
2. US ISM Non-Manufacturing PMI
Confidence in the underlying health of the US economy may pick up, meanwhile, as long as the ISM non-manufacturing PMI shows another solid reading.
While the index is expected to show a slight slowdown on the month USD exchange rates are likely to remain on a stronger footing unless the index plunged close to the neutral baseline of 50.
3. US Non-Farm Payrolls
With forecasts pointing towards a solid monthly increase in the headline non-farm payrolls figure support for the US Dollar could strengthen further ahead of the weekend.
Evidence that the US labour market started to recover some of its lost ground over the course of February may help to shore up confidence in the wider health of the US economy, lifting USD exchange rates.
GBP/USD Outlook
A stronger showing from the US labour market could see the Pound to US Dollar exchange rate shedding further ground on Friday.