Pound US Dollar (GBP/USD) Exchange Rate Plummets as US PMIs Point to Solid Growth

May 23, 2018 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Plummets as US PMIs Point to Solid Growth

UK Inflation misses its Mark – Pound US Dollar (GBP/USD) Exchange Rate Tumbles

The Pound US Dollar (GBP/USD) exchange rate tumbled on Wednesday as investors reacted to a disappointing UK consumer price inflation print and a raft of upbeat US purchasing managers’ index (PMI) readings.

According to the Office for National Statistics (ONS), consumer prices in the UK rose by 2.4% year-on-year, down from the previous period’s 2.5% rise.

This marked a fresh 1-year low; a score largely caused by falling air fares - though the rise in oil prices did provide some upward momentum.

The result is also pertinent in that it has dented hawkish expectations for the Bank of England (BoE), with many investors now concerned that the central bank will delay a rate rise until the data improves.

Indeed, Bank Governor Mark Carney stated only yesterday that he felt it was ‘right to get more data’ after the disappointing results in Q1 this year.

US Dollar (USD) Exchange Rates Climb as US Composite PMI Hits 3-Month High

The US Dollar’s (USD) rally endured on Wednesday, extended by investor anticipation for a US Fed rate rise in June and a fresh run of upbeat PMI releases.

Markit’s latest PMI readings – a useful measure of private sector activity and, therefore, economic growth – increased to a score of 55.7 in May, up from the previous score of 54.9.

This encouraging pace of growth was broad-based, with input costs rising at the fastest rate in nearly five years, employment growth proving very strong and business optimism remaining at a three-year high.

Chris Williamson, Chief Business Economist at IHS Markit shared his thoughts on the results:

‘Business optimism meanwhile remains at a three year high, with companies commonly expecting rising demand to help drive business growth, setting the scene for further strong survey results in the coming months’.

This optimism should help propel the US Federal Reserve towards a more aggressive round of rate hikes this year – an outlook that should continue to support the ‘Greenback’.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: US FOMC Minutes Imminent

The Pound US Dollar (GPB/USD) exchange rate could encounter further turbulence this evening with the release of the US Federal Open Market Committee (FOMC) minutes.

These minutes are expected to reveal hawkish sentiment, with many investors expecting the bank to be pushing for a rate rise as soon as June this year.

If this occurs then we could see the ‘Buck’s’ rally endure even into the end of the week – though other variables, like the US-China trade negotiations could continue to provoke movement.

For the UK, investors will also be keeping an eye on Brexit negotiations, with headlines indicating a lack of progress liable to keep the pressure on Sterling.

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TAGS: Pound Dollar Forecasts