Pound US Dollar (GBP/USD) Hits Two-Month High following UK PMI

Pound US Dollar (GBP/USD) Exchange Rate Strengthens on UK Growth

The Pound US Dollar (GBP/USD) exchange rate is firming this morning amid better-than-forecast UK PMI reports and thin US trading conditions.

At the time of writing the GBP/USD exchange rate is trading at around $1.2553, up approximately 0.5% from this morning’s opening rate.

Pound (GBP) Firms on Upbeat PMIs

The Pound (GBP) is rebounding this morning following the latest PMI releases.

In the wake of Jeremy Hunt’s disappointing Autumn Statement, Sterling is clawing back yesterday’s losses amid signs of economic growth in the UK.

November’s preliminary PMI figures showed an unexpected expansion in the UK’s vital services sector. The index printed at 50.5, beating forecasts of 49.5. Long awaited signs of economic growth have garnered investor interest this morning, helping to quell persistent UK recession concerns.

Similarly, while the manufacturing index printed below 50, a smaller-than-expected contraction in activity lent GBP additional support amid signs that the UK economy is slowing at a less concerning pace than previously imagined.

S&P Global notes that:

‘The UK economy found its feet again in November as the service sector arrested a three-month sequence of decline and manufacturers began to report less severe cutbacks to production schedules. Relief at the pause in interest rate hikes and a clear slowdown in headline measures of inflation are helping to support business activity, although the latest survey data merely suggests broadly flat UK GDP in the final quarter of 2023.’

While GBP investors enjoy the UK’s economic optimism this morning, a spell of upbeat trade is also underpinning the increasingly risk-sensitive Pound’s gains. Thin trading conditions in the US Dollar (USD) look to be leading investors towards riskier currencies, boosting Sterling’s upside potential.

US Dollar (USD) Retreats amid Market Closure

The US Dollar (USD) is retreating from yesterday’s wins this morning, while markets close for Thanksgiving.

The ‘Greenback’ firmed yesterday afternoon following the release of the latest US jobs data. Initial jobless claims for the week ending 18 November came in lower-than-forecast at 209,000, which lent USD some much needed support, as signs that the US labour market remains tight lifted USD sentiment.

However, the closure of US markets today makes for thin trading conditions, undermining USD’s recent wins.

Furthermore, an increasing appetite for risk also looks to be stifling investor interest in the safe-haven US Dollar today. With little to cushion USD’s downside, the ‘Greenback’ may continue to stumble while markets remain closed.

Pound US Dollar Exchange Rate Forecast: US PMIs in Focus

Looking ahead, the US Dollar is likely to be driven by the latest preliminary PMI readings tomorrow. November’s report is expected to report a slight decline in both the services and manufacturing surveys.

While manufacturing is expected to fall to 49.8, slumping into contraction territory, services are forecast to dip to 50.4. Should the data print in line with forecasts, slowing US economic activity may serve to undermine Federal Reserve interest rate hike bets, thereby denting USD on Friday.

In the meantime, the currency pairing may remain vulnerable to changes in risk appetite. Developing conflict in the Middle East and surmounting global inflationary pressures may influence cautious trade amid market uncertainty. In this instance, jittery investor may dash to safer currencies such as the US Dollar, in favour of the riskier Pound.

Yasmine Arasteh

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