Pound US dollar exchange rate climbs as USD weakens
(Updated at 18:55, 24/07/2024) The pound US dollar exchange rate rebounded from this morning’s lows as today’s session wore on, bolstered by improving Sterling sentiment and US dollar weakness. As pound investors digested PMI data for the month of July, GBP trended higher; meanwhile, weaker-than-forecast US manufacturing activity dented the ‘greenback’.
As the latest US PMIs were released, USD morale turned bearish. While activity in the service sector surpassed expectations, the latest manufacturing PMI disappointed, slipping back into contraction territory.
Chris Williamson, chief business economist at S&P Global Market Intelligence, commented on the release: ‘Growth has become worryingly skewed, with manufacturing slipping back into contraction as the service sector gains further strength.’
Further denting US dollar sentiment may have been continuing expectations for a dovish Federal Reserve decision in September. Investors are now convinced that the central bank will trim interest rates in two month’s time, marking a divergence with more hawkish banks such as the Reserve Bank of Australia (RBA)
Looking ahead, ‘greenback’ sentiment could ride tomorrow upon the afternoon’s durable goods release and GDP data. If the US economy expanded in Q2 by 2% as expected, USD/GBP may climb.
Original article continues below:
GBP/USD exchange rate hits 13-day low as ‘greenback’ strengthens
The pound US dollar (GBP/USD) exchange rate is sliding this morning, though the pound (GBP) manages to climb against several of its peers following strong PMI data. Meanwhile, the US dollar (USD) is supported by a risk-off market mood.
At the time of writing, GBP/USD is trading at $1.2902, having trended marginally lower in the past 24 hours.
Pound (GBP) buoyed by fresh PMI data
The pound is firming in several exchange rates today, supported by the release of flash PMI data for the month of July.
Manufacturing activity in the UK exceeded forecasts this month, while the services PMI fell slightly short of expectations. Nevertheless, analysts noted that it was the ninth consecutive month of expansion in the sector, with new contracts rising at a significant pace.
S&P Chief Business Economist Chris Williamson remarked that ‘Companies often commented on an improvement in market confidence and the securing of new contracts, following some reports of a pause in client spending decisions prior to the general election.’
Overall, the picture is a positive one; yet Sterling remains subdued against the US dollar. Capping further gains for the currency may be lingering headwinds regarding the likely outcome of the Bank of England’s (BoE) monetary policy decision next week.
Moreover, a general risk-off mood pressures perceived-riskier currencies against safe-haven peers such as the ‘greenback’. A slew of macroeconomic data from Germany, the Eurozone, the UK and the US keeps traders on the edge of their seats, while the Bank of Canada (BoC) is due to announce its latest interest rate decision.
Looking ahead, further indications of economic recovery in the UK are likely to lend tailwinds to the pound, although a lack of significant data for the remainder of the day’s session may limit GBP movement.
US dollar (USD) firms as risk aversion peaks
The US dollar is enjoying tailwinds across the board today, ahead of this afternoon’s domestic PMI release.
Contributing towards the currency’s uptrend is a risk-off mood; moreover, the benchmark 10-year US Treasury bond yield held above 4.2% this morning, signalling confidence in the economy. A forecast expansion in manufacturing activity in the month of July could further buoy the ‘greenback’.
On the other hand, the pace of expansion in the service sector is expected to have slowed, potentially capping USD gains. Moreover, dovish forecasts for the Federal Reserve’s next monetary policy meeting may be weighing upon investor morale.
Markets now indicate a 93.6% probability of a 25-basis point cut at the bank’s September meeting, from 88.5% yesterday. Economists are divided over the most likely outcome of the meeting, though policymakers themselves warn of the risks of maintaining restrictive policy measures.
In his latest appearance, FOMC governor Christopher Waller remarked: ‘As of today, I see there is more upside risk to unemployment than we have seen for a long time.’
His stance is echoed by Julia Coronado, a former Fed economist. Coronado voices her prediction that the Fed will give clear signals this month to ready markets for a September rate cut:
‘The labour market was so resilient, they thought they had the luxury of time to be super sure [about inflation],’ she says. ‘That luxury is fading.’
GBP/USD forecast: exchange rate to trade on PMI outcome?
The pound US dollar exchange rate is likely to trade this afternoon according to the outcome of July’s US PMI data.
If business activity increased as expected this month, the ‘greenback’ could firm – dragging GBP/USD lower. An unexpected increase in service sector activity would likely inspire additional tailwinds for the US currency.
Elsewhere, a lack of further UK data for the remainder of the session leaves the pound exposed to losses. Bearish sentiment in relation to the BoE’s likely monetary policy trajectory could weigh upon GBP, dampening trading sentiment.