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Pound US Dollar Exchange Rate News: GBP/USD Stalls as UK Construction Sector Contracts

March 4, 2019 - Written by John Cameron

Pound (GBP) Exchange Rates Flat as UK Construction Sector Contracts

The Pound US Dollar (GBP/USD) exchange rate initially got off to a strong start this week, with the pairing surging on the back of rising Brexit optimism and expectations that Brexit will be delayed.

However Sterling was forced to give up these gains following the release of the UK’s latest construction PMI.

According to data published by IHS Markit, growth in the UK’s construction sector unexpectedly contracted in February, with the index sliding from 50.6 to 49.5.

This was the first contraction in the sector in almost a year, after heavy snow disrupted growth in March 2018.

Respondents to the survey blamed the slump in growth on heightened Brexit uncertainty at the start of the year which resulted in subdued client demand and delays to commercial projects.

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply said:

‘The recent fears over the Brexit-related impacts on the sector were realised this month, as barring the weather-related blip in March last year, construction put in its worst performance since September 2017, with the PMI contracting to just below the no-change mark.

‘Commercial and civil engineering activity was pushed into the red, as client uncertainty over placing new orders left its mark. This meant the relatively weak residential building sector was the best performer. However, with consumer confidence also waning, housing is likely to follow suit in the coming months.’

While the construction sector only accounts for a relatively small portion of UK growth, the contraction in growth will do little to bolster confidence in the economy in the first quarter.

US Dollar (USD) Exchange Rates Subdued amid Trade Optimism, Trump Fed Criticism

Meanwhile the US Dollar (USD) is muted at the start of this week’s session as demand for the safe-haven currency is clipped by speculation that the US and China may be close to finalising a trade deal.

This follows a report from the Wall Street Journal overnight in which it suggests that Beijing is offering to lower tariffs on a number of US goods as well as greater protection for intellectual property in an effort to push a deal over the finish line.
The WSJ suggests that a deal will be in place for President Donald Trump and President Xi Jinping to sign in at a summit between the two leaders later in the month.

Also placing some downward pressure on the US Dollar at the start of the session were comments made by Trump over the weekend in which he warned that excessive strength in the ‘Greenback’ was hurting the US economy.

His comments were accompanied by further criticism of the US Federal Reserve, with Trump accusing Fed Chair Jerome Powell as being someone who ‘likes raising interest rates’ whilst blaming the central bank for the recent rise in the US Dollar.

GBP/USD Exchange Rate Forecast: Contraction in UK Services PMI to Cast Sterling Lower?

Looking ahead to the remainder of the week, the Pound US Dollar (GBP/USD) exchange rate looks poised to fall sharply on Tuesday as the UK rounds out February’s PMI releases with the publication of its latest Services Index.

Given that the Service sector accounts for roughly 80% of the UK’s economic growth, forecasts that the sector will have contracted in February bode poorly for Sterling, especially if it bolsters fears that the UK economy may have stagnated at the start of 2019.

Meanwhile the focus for USD investors will likely be on the release of the ISM non-manufacturing PMI as they seek to gauge how America’s own service sector fared last month, with an expected acceleration in growth in February potentially lending some strength to the US Dollar tomorrow.

However the ‘Greenback’ may be forced to give up any gains in the second half of the week, as analysts predict that US non-farm payrolls will fallen back last month.

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