Pound US Dollar (GBP/USD) exchange rate hits three-week high amid bullish trading conditions

Pound US Dollar (GBP/USD) soars following UK PMIs

The Pound US Dollar (GBP/USD) exchange rate  is strengthening this morning amid cheery trading conditions and strong UK PMIs.

At the time of writing the GBP/USD exchange rate is trading at around $1.2680, up approximately 0.3% from this morning’s opening rate.

Pound (GBP) firms on upbeat PMIs

The Pound (GBP) is gaining ground this morning as the latest UK PMIs provide a renewed sense of economic optimism.

Market conditions in the services sector remained upbeat in February’s report, holding steady at 53.4 and matching January’s eight-month high. While the manufacturing index marginally missed forecasts, it edged higher from January’s 47, to 47.1 this month, suggesting that conditions are contracting at a slower pace than before.

Chris Williamson, S&P Global Market Intelligence’s Chief Business Economist, noted that the survey indicated potential economic growth in the UK by 0.2% or 0.3% during the first quarter of 2024.

Williamson stated:

‘With growth accelerating and prices on the rise again, February’s data mean policymakers are increasingly likely to err on the side of caution when considering the appropriateness of cutting interest rates.’

A recued likelihood of imminent Bank of England (BoE) interest rate cuts may see GBP’s gains extended as today’s session continues.

US Dollar (USD) tumbles amid risk rally

The safe-haven US Dollar (USD) continues to lose ground this morning as upbeat trading conditions leave investors in favour of risk-sensitive currencies.

A spike in Nvidia shares sparked a risk rally overnight, sparked by increasing confidence in upcoming AI technology. However, this left the ‘Greenback’ unable to recoup its dovish losses in the wake of yesterday’s milder-than-expected Federal Reserve minutes.

Despite an increasingly hawkish narrative from Fed policymakers in recent weeks, the likelihood of a June rate cut edged higher to 52% last night, according to the CME Fed Watch Tool, as the publication of minutes from the Fed’s January meeting struck more dovish than anticipated.

Jeffrey Roach, Chief Economist at LPL Financial, noted:

‘Investors should see a deceleration in prices this year, giving the Fed an opportunity to cut rates by midyear.’

Pound US Dollar exchange rate forecast: US PMIs to lift the ‘Greenback’?

Looking ahead, the release of the latest PMIs in the US this afternoon may see the US Dollar rebound. Economists forecast that both the manufacturing and services indexes will report ongoing strength in February’s report, expected at 50.5 and 52, respectively.

Should the data print in line with expectations, with both indexes printing above 50, further signs of US economic growth could serve to reduce market rate cut expectations, thereby lifting the ‘Greenback’.

Also due out in the US today is the latest initial jobless claims report, with the number of US citizens claiming unemployment benefits for the week ending 17 February is due to tick up to 218,000. Increased unemployment may serve to reignite concerns of a loosening US labour market, potentially capping USD’s upside potential.

A data light afternoon for the UK may see the increasingly risk-sensitive Pound left vulnerable to market volatility, with ongoing cheery trade underpinning Sterling’s upbeat wins. Alternatively, a shift towards gloomy trading conditions will likely see the safe-haven ‘Greenback’ take precedent.


Yasmine Arasteh

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