Pound US dollar (GBP/USD) exchange rate tepid despite forecast-smashing US services PMI
Article updated 16:02, 5/6/24
The pound US dollar (GBP/USD) exchange rate is wavering this afternoon, despite a better-than-forecast showing from the latest US ISM services PMI.
In May, the key American sector grew above expectations, with the index printing at 53.8, above estimates of a 50.5 print. This showed a marked improvement from April’s reading of 49.4.
However, commentary from businesses indicated that elevated interest rates were a bugbear for the US economy.
Anthony Nieves, Chair of the ISM, commented:
‘Survey respondents indicated that overall business is increasing, with growth rates continuing to vary by company and industry. Employment challenges remain, primarily attributed to difficulties in backfilling positions and controlling labor expenses. The majority of respondents indicate that inflation and the current interest rates are an impediment to improving business conditions’
Yet, the ‘greenback’ appears unable to fully press its advantage over the pound. This may be because of a disappointing slate of ADP employment data.
In May, US private businesses added 152,000 employees to payrolls, a significant drop from 188,000 in April, and beneath forecasts of 175,000. This is being taken as a sign of slack in the US labour market, which may be undermining the US dollar.
At the time of writing, GBP/USD is trading at around US$1.2766, showing little movement from today’s morning rates.
Original article continues below:
Pound US dollar (GBP/USD) exchange rate muted ahead of US ISM data
The pound US dollar (GBP/USD) exchange rate is tepid this morning, as markets await impactful US data later in the session.
At the time of writing, GBP/USD is trading at around US$1.2774, showing little movement from the morning’s opening rates.
US dollar (USD) wavers ahead of ISM PMI
The US dollar (USD) is treading water this morning, as investors await impactful US data later in the session.
This afternoon brings the release of the latest ISM services PMI, reflecting sector activity in May. Markets forecast the index to print at 50.5, an increase from April’s reading of 49.4, which could mark a return to growth for the vital sector.
This may bring strength to the ‘greenback’ later in the session, as it would be indicative of economic resilience.
Furthermore, a positive reading could spark bets on hawkish action from the Federal Reserve. Strong economic activity may leave the central bank with more room to keep interest rates unchanged.
Beforehand, the latest ADP employment change data is also due to print. In May, the number of workers added to private payrolls is expected to have fallen from April’s reading of 173,000 to 192,000.
This may weaken USD by suggesting growing slack in the US labour market, especially in the wake of yesterday’s disappointing JOLTs data.
Pound (GBP) narrows amid continued lack of data
The pound (GBP) is trading in a narrow range this morning, as the continued absence of impactful data limits its appeal.
Investors may also be focusing on the finalised May services PMI reading. The index for the sector printed at 52.9, confirming that the sector had expanded at a slower rate.
Analysis also showed that service prices had risen at the slowest rate for over three years. This could be pressuring Sterling this morning by sparking bets on interest rate cuts from the Bank of England (BoE).
Joe Hayes, Principal Economist at S&P Global Market Intelligence, commented:
‘It is worth noting however that the PMI’s gauge of UK services inflation is still sitting well above its pre-pandemic trend, which may give more weight to those suggesting the Bank of England hold out until August to loosen policy.’
Elsewhere, a cautiously upbeat market mood is likely keeping Sterling afloat against its safer peers this morning.
Pound US dollar exchange rate forecast: US non farm payrolls data in focus
Looking ahead for the US dollar, the core catalyst of movement is likely to be the latest non farm payrolls data.
The latest reading for May is due to print on Friday, and is forecast to show an increase in jobs added from 175,000 to 190,000. If this prints accurately, it could strengthen the US dollar as it may indicate robust employment levels.
Additionally, this may prompt speculation that the Federal Reserve could keep interest rates unchanged for longer, further strengthening USD.
For the pound, meanwhile, data releases continue to be largely absent. This may prompt Sterling to trade without a clear direction through to the end of the week’s session.
However, an increase in risk appetite could lift the increasingly risk-sensitive pound above the safe-haven ‘greenback’.