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Pound US Dollar Exchange Rate News: GBP/USD Tumbles on Gloomy UK Manufacturing PMI

September 2, 2019 - Written by John Cameron

Pound (GBP) Slumps on Poor UK Manufacturing Figures

The Pound (GBP) fell back against the US Dollar (USD) and the majority of its other peers on Monday, in response to the UK’s latest factory figures.

According to data published by IHS Markit, the UK’s manufacturing PMI unexpectedly weakened last month, sliding from 48 to 47.4 versus forecasts of a modest rise to 48.4.

As a result UK factory growth now rests at a seven-year low.

Analysts attributed the continued contraction in the manufacturing sector to slowing global growth as well as heightened political uncertainty in domestic politics, both of which weighed on demand.

Rob Dobson, Director at IHS Markit, said:

‘High levels of economic and political uncertainty alongside ongoing global trade tensions stifled the performance of UK manufacturers in August.

‘The global economic slowdown was the main factor weighing on new work received from Europe, the USA and Asia. There was also a further impact from some EU-based clients routing supply chains away from the UK due to Brexit.

‘The current high degree of market uncertainty, both at home and abroad, and currency volatility will need to reduce significantly if UK manufacturing is to make any positive strides towards recovery in the coming months.’

The slump increases the risk of the UK slipping into a recession in the third quarter, as well as putting more pressure on the Bank of England (BoE) to follow other central banks in starting to cut interest rates.

US Dollar (USD) Stable as US-China Tariffs Kick In

With US markets closed for Labour data, the US Dollar (USD) was mostly steady on Monday amidst thinner trade.

USD investor also appear to have taken the latest tariffs between the US and China in their stride after they came into effect on Sunday.

The levies were announced a number of months ago so the limited reaction to their implementation is not overly surprising.

However also soothing any potential market jitters were recent comments from US President Donald Trump, as he revived hopes of progress between the two countries as he confirmed US-China trade talks will go ahead this month.

GBP/USD Exchange Rate Forecast: UK Political Turmoil Points to Further Volatility this Week

Looking ahead, the Pound US Dollar (GBP/USD) exchange rate is expected to beset by additional volatility this week as a result of heightened political uncertainty in the UK.

Parliament will reconvene following the summer recess on Tuesday for what looks to be a showdown between Boris Johnson’s government and MPs opposed to a no-deal Brexit.

With the government having moved to suspend parliament early this month, MPs will have just a week to pass legislation aimed at preventing the UK from exiting the EU without a deal in place.

Casting further uncertainty over the process is Johnson’s threat that any Conservative MPs who rebel against the party either by voting against the government or abstaining, will be immediately deselected.

This could wipe out the government’s razor thin majority in Parliament, likely increasing the chances of a snap election being called.

Meanwhile the focus for USD investors in the first half of the week may be on the latest US manufacturing PMI.

Economists forecast the data will show that growth in the US factory sector continued to slow in August, likely weakening the US Dollar as it puts more pressure on the Federal Reserve to cut rates again this month.

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