Pound US Dollar (GBP/USD) Exchange Rate Falls Further as US PMIs Exceed Expectations
(Updated 15:05, 24/01/2023) The Pound US Dollar (GBP/USD) exchange rate has continued falling through this afternoon, as the US private sector flashes for January came in hotter-than-expected.
The manufacturing index was forecast to print at 46, and instead came in at 46.8. Meanwhile, the services index was expected to land at 45, but printed at 46.6. While both sectors remain in contractionary territory, the investors may be hopeful that the US economy may enjoy a softer landing.
Similarly, the indexes pointed to accelerating inflation pressures, which could leave room for further interest rate hikes from the Federal Reserve.
At the time of writing, GBP/USD is trading at around US$1.2283, a decline of roughly 0.8% from the morning rates.
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Pound US Dollar (GBP/USD) Exchange Rate Crumbles as UK Business Activity Contracts
The Pound US Dollar (GBP/USD) exchange rate is falling this morning, as the UK private sector PMIS point to contractions in January.
At the time of writing, GBP/USD is trading at around US$1.2308, declining by roughly 0.6% from the morning’s opening rates.
Pound (GBP) Slides as UK Business Activity Slumps
The Pound (GBP) is struggling for support this morning, as the PMI flashes from S&P indicated further contractions in January.
Manufacturing indexes strode to a four-month high of 46.7, offering a shade of optimism. However, the picture for January’s output remained bleak.
Chris Williamson offered:
‘Industrial disputes, staff shortages, export losses, the rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year.’
The further expectation among analysts is that the trend will continue, with the UK continuing to be at risk of a prolonged recession.
Elsewhere, the UK’s public sector borrowing for December reached a new record high, which may be exerting further pressure on GBP.
The government borrowed £27.4bn in December, due to high debt interest and spending on energy support schemes. This was £9.8bn more than the Office for Budget Responsibility (OBR)’s forecast.
US Dollar (USD) Mixed amid Wavering Market Mood
The safe-haven US Dollar (USD) is enduring mixed trade this morning, care of a wavering market mood.
With the markets in cautious territory, the ‘Greenback’ is seeing modest support against some peers, but is trading narrowly against others.
Potentially weighing on USD rates are rate hike bets from the Federal Reserve. The current opinion of analysts is that US inflation has passed it’s peak, meaning the Fed can begin to slow their pace of tightening.
Victoria Scholar, Head of Investment at interactive investor, explained:
‘Expectations are for two 0.25 percentage point increases in the first quarter of 2023 before a pause on interest rates for the rest of the year, in stark contrast to last year’s inflation combative stream of jumbo Fed rate hikes.’
As such, the impetus is on the upcoming GDP data on Thursday for clues towards the US economy’s resilience.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: US PMI Flashes to Dent USD?
Looking ahead for the US Dollar (USD), this afternoon brings January’s PMI flashes for the services and manufacturing sector.
Both indexes are expected to show an uptick in activity, but remain in contractionary territory. For instance, the US services index is forecast to increase from 44.7 to 45. As such, the ‘Greenback’ may weaken this afternoon, as it highlights continued contractions across the US’ private sector.
For the Pound (GBP), liquidity is thin over the short term. As such, Sterling may be left vulnerable to domestic headlines. With the recession and inflation baring down on UK businesses and households alike, further news of their impact may dent GBP.
GBP/USD is a particularly risk-sensitive pairing, due to the ‘Greenback’s safe-haven nature. Should the market’s risk appetite increase, GBP may flourish.