Pound US dollar (GBP/USD) exchange rate strengthens as ISM PMI unexpectedly falls
Article updated 16:00, 3/6/2024
The pound US dollar (GBP/USD) exchange rate recouped this morning’s losses heading into the latter part of the session,
The ISM manufacturing PMI unexpectedly fell for a second consecutive month in May, showing a sharper-than-forecast contraction in US factory activity last month as new orders rose less than anticipated.
This is turn weighed on the US dollar (USD) as concerns of economic slowing in the vital manufacturing sector deterred investor interest.
Timothy Fiore, Survey Chief at ISM, said in a statement:
‘US manufacturing activity continued in contraction. Demand was soft again, output was stable, and inputs stayed accommodative. Demand remains elusive as companies demonstrate an unwillingness to invest due to current monetary policy and other conditions.’
Meanwhile, as an upbeat market sentiment permeated global trade, the increasingly risk-sensitive pound (GBP) edged higher against its safe-haven counterparts.
Looking ahead, the latest US JOLTs job openings are due for release tomorrow. Could another decline in American job openings further dent the ‘greenback’?
At the time of writing, GBP/USD is trading at around $1.2781, up approximately 0.3% from today’s opening rates.
Original article continues below:
Pound US dollar (GBP/USD) loses ground as markets await US PMIs
The pound US dollar (GBP/USD) exchange rate is weakening this morning ahead of the latest American ISM manufacturing PMI.
At the time of writing the GBP/USD exchange rate is trading at around $1.2702, down approximately 0.3% from this morning’s opening rate.
US dollar (USD) edges higher ahead of PMIs
The US dollar (USD) is recouping some of its recent losses this morning as risk-averse trading conditions underpin the safe-haven currency.
A data-heavy week ahead for the US kicks off this afternoon with the weighty American ISM manufacturing PMI release. With analysts projecting a second consecutive month of contraction in the vital US sector, the ‘greenback’ may see volatile trade ahead.
In the interim, investors continue to mull over the Federal Reserve’s stance towards monetary policy.
Brian Jacobsen, Chief Economist at Annex Wealth Management, noted:
‘If the Fed can cut because they can, rather than because they have to stave off a recession, the markets should do well.’
With markets now pricing the likelihood of a September interest rate cut at 60% following last week’s slightly warmer-than-forecast core PCE price index, expectations of a continually hawkish Fed may serve to keep USD afloat.
Pound (GBP) slips despite British manufacturing growth
The pound (GBP) is facing headwinds despite confirmation of a strengthening manufacturing sector this morning.
The UK’s finalised manufacturing PMI came in marginally below preliminary estimates of 51.3, printing at 51.2 in May, as business optimism rose to a twenty-seven-month high.
Rob Dobson, Director at S&P Global Market Intelligence, said:
‘While the latest upturn was dependent on a strengthening domestic market, there were signs of overseas demand also moving closer to stabilisation. Business optimism rose in tandem with the improvement in current conditions, with 63% of manufacturers forecasting their output to be higher one year from now.’
However, despite increased demand, new export orders fell for the twenty-eighth month in a row, capping GBP’s upside potential.
In addition to this, a shift towards gloomy trading conditions appears to stymie the increasingly risk-sensitive pound, deterring investor support amid a lack of more impactful releases today.
With UK data in short supply for the remainder of the session, GBP may remain vulnerable to global risk dynamics.
Pound US dollar exchange rate forecast: PMIs in focus
Looking ahead, the latest American ISM manufacturing PMI will likely be the primary catalyst of USD movement this afternoon. Should the index print as forecast, ongoing weakness in the US manufacturing sector may see the ‘greenback’ retreat from this morning’s highs.
Also due for release is the finalised S&P Global manufacturing PMI. Confirmation that the sector expanded in May could offer USD some modest support, though results from the ISM survey will likely take precedent.
Looking to the UK, a lack of fresh UK releases throughout the remainder of the session could see the pound left vulnerable to market risk dynamics, with a move towards upbeat trade likely to bolster the riskier currency.