Pound US Dollar (GBP/USD) Exchange Rate Marches Higher amid Upbeat UK Service PMI
The Pound US Dollar (GBP/USD) exchange rate is rising this morning, following a better-than-forecast final service sector PMI.
At the time of writing, GBP/USD is trading at around US$1.2723, strengthening by around 0.4% from the morning’s levels.
Pound (GBP) Rises amid Better-Than-Expected Service Activity
The Pound (GBP) is on the march this morning, following a better-than-anticipated final print for December’s service PMI.
Activity was stronger in December than previously expected, with optimism amongst firms climbing to a seven-month high.
The reading printed at 54.4, the highest since June 2023, notably above the preliminary flash reading of 52.7. It also marks a notable improvement from November’s 50.9 reading.
Tim Moore, Economics Director at S&P, commented:
‘December data indicated that the UK service sector ended last year on a high, with business activity growth accelerating to its fastest for six months as the turnaround in order books gained momentum.’
However, the Pound’s gains may be capped, as the improving sentiment was further fuelled by expectations of interest rate cuts.
The Bank of England (BoE) is expected to begin cutting rates soon as inflationary pressures continue to ease in the UK.
US Dollar (USD) Weakens as Markets Mull FOMC Minutes
The US Dollar (USD) is weakening this morning, in the wake of the latest FOMC meeting minutes released last night.
Investors are continuing to mull the rhetoric on display, which provided a mixed outlook from Federal Reserve policymakers. While the consensus is that interest rates need to remain unchanged for now, the path forward is uncertain.
The minutes stated that:
‘In discussing the policy outlook, participants viewed the policy rate as likely at or near its peak for this tightening cycle, though they noted that the actual policy path will depend on how the economy evolves.’
They further indicated that the Fed is firmly in a data-driven mode, and that inflation needs to show clear signs of cooling before rate cuts begin.
However, this appears to be unconvincing to investors. Per CME’s FedWatch tool, markets are pricing in a 67.3% chance of a rate cut in March, which is weighing on USD.
Pound US Dollar Exchange Rate Forecast: US Labour Slowdown to Dent USD?
Looking ahead for the US Dollar, the core catalyst of movement is likely to be the latest non farm payrolls data, due tomorrow.
Investors anticipate the figure to have fallen in December, which would indicate continued slowdown in the US labour market. This could, in turn, weigh heavily on the ‘Greenback’ during tomorrow’s session.
This is then followed by the latest ISM services PMI, reflecting activity in December. The vital sector is forecast to have slowed slightly compared to November, which may weaken USD further.
For the Pound, meanwhile, data releases look set to remain scarce. As such, GBP exchange rates could remain vulnerable to shifts in the market mood.
If the US data does show signs of economic slowdown, risk appetite could recede which would dent the increasingly risk-sensitive Pound.