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Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted as US Manufacturers Endure Worst Month in Close to a Decade

June 3, 2019 - Written by John Cameron

Pound US Dollar (GBP/USD) Exchange Rate Flat as US Manufacturing PMI Falls to Lowest Level in Close to 10-Years

The Pound Sterling US Dollar (GBP/USD) exchange rate remained flat and the pairing is currently trading at an inter-bank rate of $1.2642.

On Monday afternoon the US ISM manufacturing PMI revealed that growth in the US manufacturing sector slowed.

May’s PMI slipped to a lower-than-forecast 52.1 from last month’s 52.8, the lowest since May 2016.

Further dampening sentiment in the ‘Greenback’ came from the Markit manufacturing PMI which painted a less optimistic picture.

The PMI edged down to 50.5 in May from the upwardly revised 52.6 in April.

This was the lowest since September 2009, and new orders fell for the first time since August 2009.

Commenting on the data, Chief Business Economist at IHS Markit, Chris Williamson said:

‘May saw US manufacturers endure the toughest month in nearly ten years, with the headline PMI down to its lowest since the height of the global financial crisis. New orders are falling at a rate not seen since 2009, causing increasing numbers of firms to cut production and employment.

‘With future optimism sliding sharply lower in May, risks to near-term growth have shifted further to the downside.’

Sterling (GBP) Muted as Manufacturing Stockpiling Comes to a Halt

The UK manufacturing PMI fell sharply from 53.1 to 49.4, sliding into contraction territory for the first time since July 2016.

Both employment and new orders declined in May as stockpiling activity came to a halt following the 31 October Brexit delay.

Brexit uncertainty plagued the manufacturing sector, as clients diverted supply chains away from the UK.

Commenting on the data, Duncan Brock, Group Director at the Chartered Institute of Procurement and Supply said:

‘Concern for manufacturers has deepened this month as the sector’s performance shrank in May and tumbled into contraction. With one of the fastest shrinking rates seen in six and a half years and the biggest drop since July 2016, straight after the referendum result, based on this result, there is the likelihood of more bad news to come.

‘If there are any silver linings amongst these darkening clouds then the softening in input price inflation provides a scrap of relief along with an improvement in delivery times not seen for three and a half years.’

US Dollar (USD) Flat as China Accuses US of ‘Intimidation and Coercion’

Over the weekend trade tensions between the US and China increased as Beijing hit back.

China accused Washington of ‘intimidation and coercion’ and blasted the decision to blacklist Chinese companies such as Huawei.

Discussing this, Chinese Vice Commerce Secretary Wang Shouwen said:

‘The China-US economic and trade consultations have been severely frustrated by the US tariff increases and [the US’] abuse of export controls by including Chinese companies on the entities list.’

Pound US Dollar Outlook: Will Sliding US Factory Orders Weigh on USD?

Looking ahead to Tuesday, the Pound (GBP) could fall against the US Dollar (USD) following the release of the UK construction PMI.

If the index slides into contraction territory it could weigh on Sterling.

Meanwhile, the ‘Greenback’ could slide following the release of the US factory orders.

If factory orders slump further than expected and fall to a six-month low, the Pound US Dollar (GBP/USD) exchange rate may rise.

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