Pound US dollar (GBP/USD) relinquishes gains despite downbeat US PMI
Article updated 16:45, 1/7/2024
The pound US dollar (GBP/USD) exchange rate fell from this morning’s highs during the latter part of today’s session, despite a weaker-than-forecast ISM manufacturing PMI.
The index unexpectedly declined to 48.5 in June, indicating a faster pace of contraction than markets had projected. Falling below May’s reading of 48.7 and missing forecasts of a slight uptick to 49.1, the index pointed to a third consecutive month of falling US manufacturing activity and provided the weakest reading since February.
Timothy R. Fiore, Chair of ISM Manufacturing Business Survey Committee, commented:
‘Demand remains subdued, as companies demonstrate an unwillingness to invest in capital and inventory due to current monetary policy and other conditions.
Production execution was down compared to the previous month, likely causing revenue declines, putting pressure on profitability.’
However, a souring market sentiment appeared to cushion the safe-haven US dollar’s (USD) downside.
Looking to the pound (GBP), a lack of further releases throughout the afternoon saw the increasingly risk-sensitive currency trade without a clear trajectory.
Looking ahead, could any hawkish commentary from Federal Reserve Chair Jerome Powell lift USD tomorrow?
At the time of writing, GBP/USD is trading at around $1.2640 virtually unchanged from today’s opening levels.
Original article continues below:
Pound US dollar (GBP/USD) exchange rate firms as Fed rate cut bets increase
The pound US dollar exchange rate is climbing higher this morning as dialled up Federal Reserve interest rate cut expectations undermine the ‘greenback’.
At the time of writing the GBP/USD exchange rate is trading at around $1.2672, up approximately 0.2% from this morning’s opening rate.
Pound (GBP) mixed following manufacturing PMI
The pound (GBP) is trading in a wide range against its major peers this morning despite a lower-than-forecast UK manufacturing PMI.
The finalised index was downwardly revised to 50.9 in June, retreating from May’s reading of 51.2 and missing market projections of a slight expansion to 51.4. However, the data showed that UK manufacturing continues to move on a gradual upwards trajectory, which seemingly limits GBP’s losses today.
Rob Dobson, Director at S&P Global Market Intelligence, said:
‘The UK manufacturing sector is enjoying its strongest spell of growth for over two years, with June seeing output and new order growth sustained at robust rates similar to May’s recent highs. The performance of the domestic market remains a real positive, providing a ripe source of new contract wins.’
As the session continues, a data-light afternoon may see Sterling struggle to find a clear direction, as UK election nerves sour GBP sentiment.
US dollar (USD) falls amid ramped up Fed rate cut bets
The US dollar (USD) is on the defensive this morning ahead of this afternoon’s high impact ISM manufacturing PMI release.
In the meantime, the ‘greenback’ is struggling to attract investor support as last week’s core PCE price index weighs on USD exchange rates. The index eased as forecast to 2.6% in May, leading investors to speculate over whether the Federal Reserve could begin to lower interest rates sooner than previously anticipated, amid cooling price pressures.
Policymakers have reiterated the central bank’s data-driven approach in recent weeks, while the CME’s FedWatchTool now prices in a 64% chance that monetary unwinding could begin in September.
A statement from the central bank last week read:
‘The Fed is prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments. If future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.’
Meanwhile, a cautiously upbeat market sentiment further stymie’s the safe-haven ‘greenback’ this morning, leaving USD rudderless ahead of this afternoon’s release.
Pound US dollar exchange rate forecast: US PMI in focus
Looking ahead, the American ISM manufacturing PMI will likely be the core catalyst of USD movement this afternoon. Forecast to rise to 49.1 in June, from May’s reading of 48.7, signs of steadily increasing US factory activity could lend the ‘greenback’ some marginal support.
Looking to the UK, a lack of further releases today may see the pound driven primarily driven by global risk dynamics. A bullish market sentiment could underpin the increasingly risk-sensitive pound later today.