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Pound US Dollar (GBP/USD) Exchange Rate Falters in spite of UK Service Sector Recovery

May 3, 2019 - Written by Frank Davies

Improved UK Services PMI Not Enough to Shore Up Pound Sterling US Dollar (GBP/USD) Exchange Rate

The Pound Sterling to US Dollar (GBP/USD) exchange rate remained on a downtrend even after the UK service sector returned to a state of expansion.

While the services PMI picked up from 48.9 to 50.4, climbing out of contraction territory, this was not enough to encourage renewed confidence in the outlook of the UK economy.

As the PMI reading of 50.4 only amounts to a minimal degree of growth on the month investors remain concerned that the economy could lose further momentum in the second quarter.

Coupled with the underwhelming nature of the latest manufacturing and construction PMIs this underwhelming showing left GBP exchange rates on a downtrend.

US Dollar (USD) Exchange Rates Soften Ahead of US Non-Farm Payrolls Report

As anticipation mounted ahead of the latest US non-farm payrolls report, meanwhile, the mood towards the US Dollar improved.

In spite of Thursday’s initial and continuing jobless claims figures falling short of forecasts markets remain confident that the US labour market remained tight in April.

Another strong month for the headline change in non-farm payrolls figure could give USD exchange rates a fresh rallying point, especially if wage growth also shows signs of picking up on the month.

Although the Federal Reserve looks set to maintain a neutral policy outlook in the months ahead signs of strength from the US economy could still bolster the appeal of the US Dollar.

Widened Trade Deficit to Weigh Down US Dollar (USD) Exchange Rates

Confidence in the US economy could falter next week, however, if March’s trade balance shows a widened deficit.

Signs that ongoing trade tensions with China and the EU are continuing to weigh on export volumes could dent confidence in the underlying health of the world’s largest economy.

Unless the US and China move closer to agreeing a new trade deal the US Dollar may struggle to hold onto its recent support in the days ahead.

A narrowed deficit, on the other hand, could see USD exchange rates pushing higher across the board as investor optimism picks up.

Brexit Speculation to Provoke Further GBP Exchange Rate Volatility

Fresh UK data will be a little thinner on the ground throughout most of next week, limiting the potential for a Pound Sterling recovery.

Even so, if the BRC like-for-like sales data shows another contraction in spending this could see the GBP/USD exchange rate slump on Tuesday.

Brexit-based developments could also provoke volatility for the Pound in the days ahead, as markets continue to hope for a breakthrough in cross-party discussions.

If investors see signs of increased clarity over Brexit and the UK’s future relationship with the EU this could help the GBP/USD exchange rate recover some of its lost ground and return to an uptrend.
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