(Updated 15:30, 03/04/24) The pound US dollar (GBP/USD) exchange rate climbed higher today following a surprise downturn in the US services sector.
After wavering against the pound (GBP) this morning, the US dollar (USD) has since plummeted as the latest American ISM services PMI missed forecasts this afternoon.
The index fell to 51.4 in March, retreating from February’s 52.6 and missing market expectations of 52.7. Providing the weakest reading in three months, economists attributed the slowdown to weak employment and decelerating new orders.
Anthony Nieves, Chair of the Institute for Supply Management Services Business Survey Committee, said:
‘Employment challenges remain a combination of difficulties in backfilling positions and/or controlling labor expenses.’
However, the employment change register reported the largest increase in hiring in eight months, with 184,000 new jobs added by the US private sector in March, rather than the forecast 148,000. The upbeat reading could serve to quell recent scrutiny placed on the American labour market ahead of this weekends high impact employment data.
At the time of writing, GBP/USD is trading at $1.2606. This is up from an earlier high of €1.2587 and up approximately 0.2% from its opening levels.
The focus moving forward is the latest initial jobless claims in the US, for the week ending March 30. If the number of unemployed American citizens caliming unemployment benefits rises as forecast, GBP/USD may extend today’s gains.
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Pound US dollar (GBP/USD) fluctuates amid lack of data
The pound US dollar (GBP/USD) exchange rate is extending this week’s losses ahead of high impact US data, due out this afternoon.
At the time of writing the GBP/USD exchange rate is trading at around $1.2581, virtually unchanged from this morning’s opening rate.
US dollar (USD) muted following investor sell-off
The US dollar (USD) is quiet this morning in the wake of yesterday’s profit-taking stint.
After a surprise uptick in the ISM manufacturing PMI saw USD hit a four-and-a-half-month high on Tuesday, the ‘greenback’ faced heavy selling pressure as investors sought to cash in on the currency’s multi-month highs.
Ahead of this afternoon’s notable macroeconomic releases, the US dollar will likely remain subdued as investors anticipate the market moving American data.
Elsewhere, markets are surmising that an increasingly resilient US economy could form scaled back Federal Reserve interest rate cuts this summer, with rapid developments in artificial intelligence and increased fiscal headroom paving the way for continually restrictive monetary policy.
Guillermo Felices, Global Investment Strategist at PGIM Fixed Income, said:
‘The market is thinking that terminal rates are likely to be higher relative to the Fed and recent history.’
During a data-light start to the day, shifting Fed rate cut bets could keep USD afloat as the morning progresses.
Pound (GBP) quiet amid data lull
The pound (GBP) is mostly subdued this morning, as a lack of fresh macroeconomic releases leaves Sterling vulnerable to surmounting Bank of England rate cut bets.
Analysts from investment banking giant Goldman Sachs reiterated forecasts of a June rate cut in a note published this week.
The economists highlighted the effect of falling UK services inflation in relation to the central bank’s movements, affirming that waning energy prices will likely see services inflation ease in the coming months.
James Moberly and Sven Jari Stehn, economists at Goldman Sachs, wrote:
‘We find that the pass-through effects from higher energy and food prices will unwind rapidly in coming months.’
The analysts went on to state that domestic inflationary cooling will encourage BoE rate-setters to begin their unwinding cycle, therefore heralding imminent monetary loosening. As such, GBP may struggle to gain ground against its rivals this morning.
Pound US dollar exchange rate forecast: resilient US services sector to lift the ‘greenback’?
Looking ahead, the US dollar may experience volatile trade this afternoon amid a few notable releases.
The ADP employment change is due to show that 148,000 American citizens were hired within the private sector in March, edging slightly higher from last month’s lacklustre 140,000. Sometimes viewed as an indicator for the high impact non farm payrolls, a weak reading may undermine USD exchange rates.
Following this, the ISM services PMI is also due out in the US later today. Economists forecast an index reading of 52.7 in March, rising marginally from February’s 52.6. Following last month’s surprise downturn in the US services sector, another disappointing reading could dent USD.
A speech from Federal Reserve Chair Jerome Powell, as well as talks from policymakers Michael Barr and Adriana Kugler could drive further USD movement amid talks of potential monetary unwinding by the central bank.
For Sterling, a lack of fresh UK data could see the increasingly risk-sensitive pound left vulnerable to shifts in market mood, therefore firming against its safer rivals amid cheery trade. Otherwise, thin trading conditions could see GBP trade in a wide range.