Pound US Dollar (GBP/USD) Exchange Remains Depressed after Strong US Service Sector Growth
(Article updated 16:45, 24/3/23) The Pound US Dollar (GBP/USD) exchange rate has remained low this afternoon, following the publication of the US’ latest public sector indexes.
While manufacturing remained in contractionary territory, March’s service index pointed to a surprising jump in growth.
As a key part of the US economy, this prompted the ‘Greenback’ to continue it’s early morning rally.
Chris Williamson, the Chief Business Executive of S&P Global Market Intelligence, commented:
‘The PMI is broadly consistent with annualized GDP growth approaching 2%, painting a far more positive picture of economic resilience than the declines seen throughout the second half of last year and at the start of 2023.’
At the time of writing, GBP/USD is trading at around US$1.2228, a decline of roughly 0.4% from the morning’s opening rates.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Falls despite Upbeat UK Economic Outlook
The Pound US Dollar exchange rate is weakening this morning, despite upbeat UK private sector indexes. A generally downbeat market mood may be elevating USD.
At the time of writing, GBP/USD is trading at around US$1.2218, a decline of roughly 0.5% from the morning’s opening rates.
Pound (GBP) Cushioned by Encouraging PMIs
The Pound (GBP) is being cushioned this morning, following the release of the latest private sector indexes.
While unable to capitalise on the upbeat readings, they appear to be preventing GBP from bottoming out further. In the release, the UK’s service sector remained in growth but came in below forecasts.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated:
‘The surveys are broadly consistent with GDP growing at only a modest quarterly rate of 0.2%, but this represents a welcome expansion compared to the lack of growth seen in the second half of last year.’
Furthermore, upbeat retail sales data from February could be underpinning GBP. Printing above forecasts, sales increased over the month, and returned to their pre-pandemic levels.
However, the data showed little in the way of tangible growth for the sector, which may be capping potential gains.
US Dollar (USD) Buoyed by Souring Market Mood
The US Dollar (USD) is enjoying modest safe-haven flows this morning, amid a sour market mood. Uncertainty is permeating the markets, with the recent banking crisis still lingering.
Furthermore, geopolitical tensions could be putting a dampener on investor spirits. Overnight, the US launched a series of drone strikes against Iranian-backed facilities in Syria. The attack was launched in retaliation against a drone strike which killed a US contractor.
Markets may also be cheering at the prospect of a pause in tightening. The Federal Reserve took a dovish angle earlier this week.
Russ Mould, AJ Bell’s Investment Director, commented:
‘We may be close to the end of the rate hiking cycle, certainly the Federal Reserve hinted as much earlier this week, but we are certainly not out of the woods yet.’
Similarly, reassurances from the US Treasury Secretary Janet Yellen may be elevating USD. Yellen commented that room to support struggling banks was available, soothing some market jitters.
GBP/USD Exchange Rate Forecast: CBI Index to Dent GBP?
Looking ahead to early next week for the Pound, Monday brings the latest distributive trades data from the CBI. March’s index is forecast to show weakness in the UK’s retail sector, falling to -18 from 2.
If this prints accurately, it may weigh heavily on Sterling. However, if the index remains upbeat, GBP could rally.
For the US Dollar, the CB consumer confidence index is due to print on Tuesday. With a downtick expected to 101 from 102.9, USD could struggle for support.
Elsewhere, market sentiment is likely to play a role in driving the pairing. If the market mood sours and risk appetite recedes, the safe-haven ‘Greenback’ could strengthen against Sterling.