UK Data Helps Pound US Dollar Exchange Rate Recover from Lows

January 4, 2017 - Written by Frank Davies

STORY LINK UK Data Helps Pound US Dollar Exchange Rate Recover from Lows

The Pound to US Dollar exchange rate tested its weekly best levels on Thursday afternoon as the US Dollar was sold ahead of Friday’s session.

Friday’s US Non-Farm Payroll report will be the final one before President-elect Donald Trump takes office on the 20th, and as a result is being seen as a vital show of how the job market is performing.

(Previously Updated 04/01/2017)

The Pound to US Dollar exchange rate recovered slightly on Wednesday after falling earlier in the week. The exchange rate was boosted by this week’s UK PMI results, but hard Brexit concerns kept GBP from its best levels.

GBP/USD began the week trending at 1.2339 and on Tuesday hit a weekly (2017) low of 1.2209. The pair remained below the level of 1.23 on Wednesday.

Pound (GBP) Can't Reach Best Levels Amid Hard Brexit Fears

Sterling has been boosted this week by Markit’s December PMIs, which have thus far printed well above expectations. Manufacturing came in at 56.1 on Tuesday, and construction beat forecasts of 52.6 to score 54.2 on Wednesday.

While this improved hopes that UK economic activity would remain strong into the beginning of the Brexit process, investors also became increasingly concerned about the possibility of a hard Brexit.

Hopes that the UK would maintain access to the EU single market following the Brexit were diminished by news that Sir Ivan Rogers, one of the most experienced UK-EU diplomats, had resigned early from his role as UK ambassador to the EU.

In an email explaining his resignation, Rogers also indicated that there was not yet a concise Brexit negotiation strategy or negotiating team. The event has overall been seen as quite a blow to the Brexit negotiation outlook and has put a mid-term damper on GBP trade.

US Dollar (USD) Bolstered by US 2017 Outlook

Demand for the US Dollar has been strong since the election of businessman Donald Trump as the next US President, with investors hoping his proposals to stimulate the US economy through spending and bringing back manufacturing jobs would boost US inflation from 2017.

Some analysts perceive the US Dollar as now being overbought which has weighed slightly on demand in recent weeks, but as the New Year begins investors are optimistic on the year ahead.

This week’s US data has also been optimistic thus far. Tuesday’s American session saw the publication of some of ISM’s December PMIs, including an impressive manufacturing result of 54.7. This beat projections of 53.8 quite comfortably.
ISM’s prices paid results also beat expectations, as did Markit’s own US manufacturing PMI.

GBP/USD Forecast: Services PMIs Due Thursday

The Federal Reserve will publish its December meeting minutes on Wednesday afternoon, which may give the US Dollar an additional boost if it goes into more detail on the Fed’s recent hawkishness.

Thursday is to be the biggest day of the week for UK data as it will see the publication of December’s services and composite PMI results from Markit.

Currently, services are expected to slip from 55.2 to 54.7 and composite from 55.2 to 55. If these figures fall as feared Sterling may lose much of this week’s strength despite the better-than-expected results in manufacturing and construction.

Thursday will also see the publication of US non-manufacturing composite PMI from ISM, which is expected to slip from 57.2 to 56.7.

Sterling is likely to remain weighed down regardless of data results for most of the week unless the UK government instils markets with more confidence towards the Brexit process. A quick replacement for Sir Ivan Rogers would likely give GBP/USD some strong support, for example.

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