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GBP USD Exchange Rate Rises as UK Services PMI Rises

October 4, 2017 - Written by John Cameron

The Pound US Dollar (GBP USD) exchange rate rebounded from a week-week low today as investors became a little more upbeat following the release of the UK’s latest Service PMI.

Sterling Strengthened by Service PMI



The Pound stuck higher against the US Dollar this morning after two consecutive days of decline as markets welcomed an uptick in activity in the UK’s service sector last month.

According to data compiled by analytics firm IHS Markit, the UK’s Services PMI unexpectedly rose from 53.2 to 53.6 in September, outpacing forecasts that it would remain flat.

The figures were a relief to GBP investors, many of whom hand feared that the Services index would have mirrored the Manufacturing and Construction PMIs released earlier in the week, both of which saw activity slow last month.

However while investors welcomed the modest rise in activity in the UK’s all-important service sector, the underlying data painted a slightly more unsettling picture as is showed business growth fell to its lowest levels in over a year, with the political and economic uncertainty surrounding Brexit appearing to be a key factor behind the decline.

Analysts worry that the downturn in business growth may also have consequences on the wider UK economy this year and could lead to subdued GDP figures in the fourth quarter.

James Smith Developed Markets Economist at ING Bank said;

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‘At 53.6, the UK services PMI was a little better than hoped. But dig a little deeper and the key takeaway for us was the fact new business growth is at a 13-month low. With the current PMI roughly indicating growth in the 0.3% region, this latter point means that growth over the next couple of quarters could be equally as sluggish.’

‘Once again, political uncertainty was a key factor in holding back growth.’

US Dollar Bolstered as Non-Manufacturing PMI Beat Expectations



Meanwhile the US Dollar was able to slow the Pound’s advances towards the end of the day as the US released its own services figures.

According to data published by the Institute of Supply Management (ISM) the latest US non-manufacturing PMI surged from 55.3 to 59.8 in September, sailing past initial expectations that it would rise to 55.5 and reaching its highest levels since August 2005.

Making the data all the more impressive was the fact that this happened in the same month that the US economy was disrupted by two Hurricanes.

Anthony Nieves, ISM chair, said;

The non-manufacturing sector has reflected strong growth in the month of September despite the impact on the supply chain from the recent hurricanes. Respondents’ comments indicate a good outlook for business conditions.

However despite the uptick analysts suggest that third quarter US GDP figures are still likely to impact by the Hurricane, with official data possibly diverging from today’s survey.

GBP USD Forecast: Yellen to Hint as December Rate Hike



Looking ahead the GBP USD exchange rate may dip again later this evening if in a speech Federal Reserve Chair, Janet Yellen makes any further hints that the bank plans to raise interest rates a third time this year.

However with CME groups FedWatch tool already placing the odds of a December rate hike at over 80% is unclear how much impact Yellen’s speech may have on the US Dollar.

Meanwhile growing concerns over the timetable of Brexit talks may hamper the Pound later in the week as apparent divisions in the Theresa May’s cabinet and disagreements over the rate of progress in negotiations looks set to delay trade talks between the UK and the EU, with MEP’s even voting recently to postpone trade talks until a ‘major breakthrough’ is made in negotiations.

Current Interbank Exchange Rates



At the time of writing the GBP USD exchange rate was trending around 1.3277 and the USD GBP exchange rate was trending around 0.7533.

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