Pound US Dollar (GBP/USD) Exchange Rate Rallies as US Services Sector Contracts
(Updated 15:18 6/01/2023) The Pound US Dollar (GBP/USD) exchange rate is rallying this afternoon, after the US service sector PMI printed at a shock contraction.
The index was forecast to reflect a slowdown, falling from 56.5 in November to 49.6. Anthony Nieves, the Chair of the Institute of Supply Management, stated in an accompanying report:
‘The composite index ended a 30-month period of growth, contracting for the first time since two straight months of sub-50 percent readings in April and May 2020. Of the four subindexes that directly factor into the Services PMI®, three — New Orders, Employment and Supplier Deliveries — contracted in December.’
At the time of writing, GBP/USD is trading at around US$1.2015, a rise of nearly 0.9% from the morning’s rates. As such, GBP has managed to recover from the earlier losses against the ‘Greenback’.
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Pound US Dollar (GBP/USD) Exchange Rate Falls as UK House Prices Slip
The Pound US Dollar (GBP/USD) exchange rate is weakening this morning, as UK house prices continue to fall sparking further recession anxieties.
At the time of writing, GBP/USD is trading at around US$1.1862, a fall of 0.4% from the morning’s opening rates.
Pound (GBP) Muted as House Prices Fall Further
The Pound (GBP) is directionless this morning, as house prices continue to drop further, amplifying recession concerns.
Due to a lack of prescient data, investors appear to be shifting focus towards domestic headlines across the UK. As such the fall in house prices, linked to the UK’s cost-of-living crisis, are causing sentiment to sour towards Sterling.
This was explored further by Kim Kinnaird, Director of Halifax Mortgages, who stated:
‘As we’ve seen over the past few months, uncertainties about the extent to which cost of living increases will impact household bills, alongside rising interest rates, is leading to an overall slowing of the market.’
Continuing industrial action across the UK may be adding further pressure to Sterling this morning. Strikes and walkouts are continuing across the UK, with further action threatened by unions as negotiations seem unlikely.
US Dollar (USD) Firms Ahead of Non-Farm Payroll Data
The US Dollar (USD) is enjoying support this morning, as investors anticipate further data pertaining to the labour market.
With yesterday bringing strong jobs data, investors anticipate that the Federal Reserve will be able to keep interest rates high.
As such, analysts are looking to the idea that the Fed will hike rates further to control inflation. They are seen to be ‘willing to bear the costs’ of forcing unemployment to control inflation.
Furthermore, safe-haven flows are providing further support for the US Dollar as the market mood appears tepid.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: Domestic Headlines to Sway Sterling?
Looking ahead for the Pound (GBP), trading conditions are thin for most of next week. Because of this, investors may focus on domestic headlines within the UK.
Due to the unfurling cost-of-living crisis and recession, headlines detailing their impact may weaken Sterling. Similarly, continuing industrial action across many sectors may also weigh on GBP, unless negotiations provide optimism for an end.
On Friday, November’s GDP data is due to print. A fall is expected from 0.5% to a flat 0%, which may push the Pound lower if it prints as forecast.
For the US Dollar (USD), this afternoon brings the latest non-farm payrolls data and the ISM non-manufacturing PMI.
December’s non-farm payroll data is forecast to show a fall in created jobs from 263000 to 200000. This fall could drag USD, but it still remains in the usual boundaries.
The ISM non-manufacturing index is forecast to show slowdown from 56.5 to 55, which may weaken the US Dollar.
Through to next week, Thursday brings the latest headline and core inflation data for December. Both figures are expected to fall, which could further weigh on the ‘Greenback’ by dampening rate hike expectations.