GBP/USD Exchange Rate Holds Steady on UK PMI and Sour Market Sentiment
The Pound US Dollar (GBP/USD) exchange rate is moving mostly sideways this morning as strength in both currencies keeps the pair in a tight range.
Any developments in the Russia-Ukraine crisis could trigger movement this afternoon, while tomorrow brings some high-impact data releases.
Pound (GBP) Buoyed by Strong PMIs
The Pound (GBP) is holding steady against the US Dollar (USD) today, despite a risk-off market mood, thanks to strong results from the UK’s flash PMIs for February.
The UK’s manufacturing PMI held steady at 57.3, 0.1 above expectations. However, service-sector activity smashed forecasts, rising from 54.1 to 60.8, rather than 55.5. The composite PMI printed at 60.8, its highest level since June.
These results indicate a strong recovery in the UK economy as it bounced back from the disruption caused by Omicron.
Gabriella Dickens, Senior UK Economist at Pantheon Macroeconomics, has revised up her forecast for UK GDP in the first quarter of this year. She also said that the Bank of England (BoE) is even more likely to raise interest rates at its next meeting:
‘[W]e are now revising up our forecast for quarter-on-quarter GDP growth in the first quarter to 0.6%, from 0.3% previously…
‘The combination of reviving economic activity and widespread price increases suggests that the MPC almost certainly will raise Bank Rate to 0.75% at next month’s meeting.’
This strong economic data and BoE rate hike bets could drive the Pound higher throughout today’s session. However, investors will also be keeping an eye on the Russia-Ukraine crisis. If the market mood sours, GBP/USD could dip, with the riskier Pound falling against the safe-haven US Dollar.
Turning to tomorrow, the latest public sector borrowing figures could support the Pound. Economists expect government revenue to exceed spending for the first time since January 2020, before the pandemic hit.
A speech from BoE Deputy Governor Dave Ramsden could also boost Sterling. Ramsden is known as one of the most hawkish members of the bank’s Monetary Policy Committee (MPC), so his comments could fuel speculation of a steeper pace of rate hikes.
US Dollar (USD) Steady amid Risk-Off Mood
The safe-haven US Dollar is enjoying a risk-off market mood today as fears of a Russian invasion rattle markets.
Analysts believe Russia is setting the stage for a false-flag operation by creating a pretext to invade Ukraine. Russian-backed separatists in eastern Ukraine have evacuated their self-proclaimed republics, accusing the Ukrainian military of shelling their positions with mortars.
More recently, Russia’s security service, the FSB, has claimed that a shell from Ukraine hit a Russian border guard post in the Rostov region, but that no one was hurt. Ukraine denies firing mortars, and US President Joe Biden pointed out that such a move ‘defies basic logic’ when there are 150,000 Russian troops amassed on the border.
Analysts believe that the threat of an imminent invasion is high, and this is weighing on markets. As a result, investors are flocking to safe havens, such as the US Dollar.
The situation in Ukraine is constantly developing and risk appetite has been volatile as the crisis continues. As such, we could see USD exchange rates fluctuate. If the situation deteriorates, however, then the US Dollar could climb.
Tomorrow brings the Markit PMIs for the US. As the UK, Eurozone and Australian PMIs all exceeded forecasts, investors may be expecting a strong services PMI from the US too. Such a result could boost USD.
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