US Dollar (USD) Exchange Rate Trends Lower after Disappointing US Services Data
Although traders are somewhat cautious ahead of the latest Bank of England (BoE) interest rate decision, prepared for more dovish comments from policymakers, the Pound (GBP) is nevertheless benefiting from a softer US Dollar (USD). Yesterday’s weak US services data has prompted the Pound Sterling to US Dollar (GBP/USD) exchange rate to trend higher this morning around 1.4612.
Earlier…
The Pound (GBP) has been making gains against the US Dollar (USD) on Wednesday afternoon following a stronger-than-expected UK Services PMI.
Weaker US Manufacturing Prompted US Dollar (USD) Downtrend on Slowdown Worries
Disappointing US Personal Consumption Expenditure and ISM Manufacturing Index results softened the US Dollar (USD) at the beginning of the week, undermining the image of a defiantly strengthening US economy. Following the more cautious tone of the Federal Open Market Committee (FOMC) at the first policy meeting of 2016 this did little to reassure pundits this furthered suggestions that the Fed will not achieve its initial goal of four interest rate hikes over the course of the year. Despite market risk aversion prompting investors to favour safe-haven assets in the wake of a discouraging Chinese Manufacturing PMI, however, the ‘Greenback’ remained on a weaker footing.
Meanwhile, the Pound Sterling (GBP) was bolstered by a stronger-than-expected UK Manufacturing PMI, which unexpectedly advanced from 52.1 to 52.9 in January. Although ‘Brexit’ fears have been weighing heavily on the currency in recent weeks the circulation of a draft agreement between Prime Minister David Cameron and the European Commission offered some encouragement to investors.
UK Services PMI Betters Expectations to Shore up Pound Sterling (GBP) Exchange Rate
Confidence in the Pound built further today after the latest UK Services PMI printed higher than expected, climbing from 55.5 to 55.6 at the start of the year and indicating that growth within the domestic economy had not been as sluggish as pundits had thought. Given the significant portion the sector contributes to the UK’S GDP this stronger showing encouraged some investors to start betting that first quarter growth would better forecast. Although the Bank of England (BoE) remains likely to take a more dovish outlook on Thursday, with members of the Monetary Policy Committee (MPC) expected to vote 8-1 in favour of leaving interest rates unchanged, the GBP/USD exchange rate has nevertheless advanced bullishly.
Despite a stronger-than-expected ADP Employment Change figure the US Dollar has remained in muted spirits this afternoon, with traders anticipating a softer ISM Non-Manufacturing Composite Index. As the world’s largest economy appears to be feeling the effects of the wider global slowdown this has encouraged speculation that the Fed might have acted prematurely in hiking interest rates in December.
GBP/USD Exchange Rate Forecast: Pound to Trend Lower ahead of BoE Policy Decision
Tomorrow’s BoE policy meeting will likely provoke fresh volatility for the Pound, particularly as the day will also see the publication of the central bank’s latest Inflation Report. Should policymakers continue to signal that interest rates are expected to remain lower for longer the GBP/USD exchange rate could give up much of its recent gains, as the odds of a 2016 rate hike recede further.
The ‘Greenback’ may return to bullish form ahead of the weekend with the release of 2016’s first Non-Farm Payrolls report, as today’s stronger employment data could precede a greater increase in the domestic workforce. As members of the FOMC place particular importance on jobs growth in considering monetary policy a more solid showing here could offer some much needed encouragement to policymakers.
Current GBP, USD Exchange Rates
At the time of writing, the Pound Sterling to US Dollar (GBP/USD) exchange rate was making strong gains around 1.4543, while the US Dollar to Pound Sterling (USD/GBP) pairing was slumped in the region of 0.6876.
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