GBP USD Exchange Rate Plummets as UK Manufacturing Disappoints

April 3, 2017 - Written by Frank Davies

STORY LINK GBP USD Exchange Rate Plummets as UK Manufacturing Disappoints

The British Pound to US Dollar exchange rate continued to slide on Tuesday afternoon. Investors hesitated to buy the Pound amid concerns that Wednesday’s UK services PMI would also fail to meet expectations.

The US Dollar saw little change in movement in the afternoon despite news that February’s US trade deficit had lightened further than expected – from -$48.2b to -$43.6b.

[Previously updated 04/04/2017]

There was no support for the Pound on Tuesday as the UK construction PMI also fell short of forecasts, suggesting that the economy ended the first quarter in a weaker state.

A general increase in market risk appetite shored up the US Dollar, meanwhile, even as US data proved similarly disappointing.

[Previously updated 03/04/2017]

The GBP USD exchange rate tumbled this morning as the UK’s manufacturing sector performed worse than expected in March.

Pound US Dollar (GBP USD) Punished by Manufacturing PMI

The Pound US Dollar (GBP USD) exchange rate plummeted this morning as IHS Market reported that the UK’s Manufacturing Sector performed worse than expected in March.

According to the data compiled by Markit the UK’s Manufacturing PMI fell from 54.6 to 54.2 last month, disappointing economists who had predicted that activity would rise to 55.1 and printing its third consecutive fall in growth.

There are now growing concerns that the recent downtrend in factory activity will continue later into the year as consumes continue to be pressured by rising inflation and low wages.
Rob Dobson, Senior Economist at IHS Markit said;

‘With growth losing further momentum in March, that weaker trend is likely to continue into the second quarter. The latest survey also clearly shows that high costs and weak wage growth are sapping the strength of consumers, with rates of expansion in output and new orders for these products slowing further.’

However some analysts were slightly more upbeat as they suggested that rising exports, prompted by foreign buyers rushing to take advantage of the weakened Pound could help to plug the gap left by falling domestic consumption.

US Dollar Weakened by Dovish Bullard Speech

Meanwhile the US Dollar remains weakened by a speech last week from St. Louis Federal Reserve President, James Bullard as he said that three more rate hikes this year would be ‘overkill’ for the US economy.
Despite generally upbeat data regarding major economic indicators such as unemployment and housing, Bullard suggested that the Fed would be wise to wait until inflation improves before tightening monetary policy any further.

Talking to FOX News Bullard also said;

‘You might see longer term rates come down, which we’ve seen since the March move. You might see inflation expectations fall. You might see a little bit slower growth. You might see a little bit of dampening on the economy more than you expected.’

The comments will come as a major blow to many USD investors who had still hoped that that early start to rate hikes this year would leave room for more than the three raises initially predicted by the Bank.

GBP USD Exchange Rate Forecast: US Manufacturing PMI Ahead

The GBP USD exchange rate may mount a recovery later this afternoon if the latest US Manufacturing data also disappoints as analysts forecast that March’s reading will shrink from 57.7 to 57.0.

However the Pound may be forced to cede any ground gained tomorrow morning if the UK’s Construction PMI also disappoints investors.

Current Interbank Exchange Rates

At the time of writing the GBP USD exchange rate was trending around 1.24 and the USD GBP exchange rate was trending around 0.80.

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TAGS: Dollar Pound Forecasts