Pound US Dollar (GBP/USD) Exchange Rate Languishes Near Six-Month Low following Dire PMIs

Pound US Dollar (GBP/USD) Exchange Rate Bruised after Week of Losses

(Updated 16:40, 22/09/23) The Pound US Dollar (GBP/USD) exchange rate ends the week languishing near a six-month low after a terrible session for Sterling.

Following weaker inflation, a dovish Bank of England (BoE) decision, and a deepening contraction in the UK’s services PMI, the Pound (GBP) slumped against the US Dollar (USD) this week.

During today’s session, Sterling attempted to recover after the post-PMI selloff. However, GBP failed to recoup its losses, instead wavering just above the earlier six-month low.

At the time of writing, the GBP/USD exchange rate is trading at $1.2265. This is 0.25% down on the day and over 1% down on the week, but up from its worst level of $1.2232.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Extends Losses as UK Service Sector Contraction Deepens

The Pound US Dollar (GBP/USD) exchange rate is stumbling this morning after the UK’s PMI results reported a larger-than-forecast contraction in the vital services sector.

At the time of writing, GBP/USD is trading at around $1.2246, having struck a fresh six-month low.

Pound (GBP) Continues to Tumble following Poor Data

The Pound (GBP) faced fresh selling pressure this morning, extending the week’s dramatic losses, after troubling PMI data.

The latest surveys showed that business activity contracted more than forecast again this month. The services PMI score dropped from 49.5 to 47.2, versus expectations of 49.2. As services account for around 80% of UK economic output, this weak reading paints a bleak picture of the country’s economic health.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented:

‘The disappointing PMI survey results for September mean a recession is looking increasingly likely in the UK. The steep fall in output signalled by the flash PMI data is consistent with GDP contracting at a quarterly rate of over 0.4%, with a broad-based downturn gathering momentum to hint at few hopes of any imminent improvement.

‘Underscoring the severity of the UK’s deteriorating situation, September’s downturn is the steepest since the height of the global financial crisis in early 2009 barring only the pandemic lockdown months.’

The PMIs have fuelled recession fears while also spurring speculation that the Bank of England (BoE) is done raising interest rates, following yesterday’s dovish decision. As a result, Sterling is sliding.

US Dollar (USD) Rises amid Risk Aversion

Meanwhile, the US Dollar (USD) is gathering strength today as anxious investors flock to the safe-haven currency.

The UK’s dire PMIs were accompanied by weak Eurozone data, suggesting a downturn across the European continent as interest rates weigh on the global economy.

These fears sparked widespread risk aversion, thereby boosting USD.

The ‘Greenback’ also enjoyed growing expectations of policy divergence between the Federal Reserve and the Bank of England. At the Fed’s policy meeting on Wednesday, the US central bank signalled that another rate rise this year is likely.

GBP/USD Exchange Rate Forecast: US PMIs to Boost the ‘Greenback’?

Looking ahead, the US PMIs due out this afternoon could influence the Pound US Dollar pair. While today’s releases aren’t as impactful as the ISM PMIs, they can still drive USD movement.

Economists expect September’s results to print marginally higher than the August results, showing an ongoing contraction in manufacturing and sluggish services growth. However, with the US PMIs set to be stronger than the UK’s, this could boost the ‘Greenback’.

If the PMI results exceed expectations, pointing to resilience in the American economy, then USD could climb on fresh Fed rate hike bets.

Meanwhile, Sterling is likely to remain on the defensive as the BoE’s dovish decision and the UK’s slowing economy maintain pressure on the Pound.

Samuel Birnie

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