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Pound Sterling US Dollar (GBP/USD) Exchange Rate Flat Ahead of US Non-Farms Payrolls

October 4, 2019 - Written by John Cameron

Pound US Dollar (GBP/USD) Exchange Rate Left Muted Ahead of US Jobs Report

The Pound Sterling US Dollar (GBP/USD) exchange rate remained muted and the pairing is currently trading at around $1.2335.

The US Dollar was left muted against the Pound as investors awaited for September’s highly anticipated US non-farms payrolls.

It is expected that job growth has likely picked up in September and wages have increased solidly. This has calmed market concerns the US economy is on the brink of falling into a recession.

However, USD was left muted following a disappointing slew of US data. Manufacturing activity plummeted to more than a decade-low, and new business growth in the services sector slumped to an all-time low.

This provided further signs that the effects of the US-China trade war were spilling out into the broader US economy.

Commenting on this, Joel Naroff, chief economist at Naroff Economic Advisors, said:

‘The economy is slowing, but it is not in recession and there is no reason to believe it will go into the red this year.

‘The jobs report will likely confirm that situation as moderate job growth is expected.’

Brexit Pessimism Weighs on the Pound (GBP)

Sterling was left under pressure as Brexit pessimism over how or if the country will be leaving the EU by the end of October weighed on the manufacturing sector.

The British Chambers of Commerce (BCC) revealed manufacturing sales fell at the sharpest pace since 2011.

Commenting on this, BCC head of economics, Suren Thiru said:

‘Our findings point to a worrying drop-off in UK economic activity, with unrelenting uncertainty over Brexit and a notable slowing in global growth prospects dragging down almost all the key indicators in the quarter.

‘Looking forward, weakening orders, confidence and investment intentions suggest that unless action is taken in the UK’s current weak growth trajectory could drift markedly lower over the near term.’

Meanwhile, reports that the European Union is 'open but not convinced’ by the Prime Minister’s new Brexit deal left GBP under pressure.

Boris Johnson’s plan would see Northern Ireland stay in the EU single market but leave the customs union.

Weak US Services PMI Leaves US Dollar (USD) Under Pressure

On Thursday, Markit revealed that new business growth in the US services sector slowed to the lowest in the history of the survey.

While the PMI figure edged up to 50.9 in September, from 50.7 in August, many firms commented on less robust client demand.

This likely weighed on the Dollar, leaving the currency muted against Sterling.

Commenting on this, Chief Business Economist at IHS Markit, Chris Williamson noted:

‘A disappointing service sector PMI follows news of lacklustre manufacturing and means the past two months have seen one of the weakest back-to-back expansions of business activity since 2009, sending a signal of slower GDP growth in the third quarter. The surveys are consistent with the economy growing at a 1.5% annualised rate in the third quarter, with forward-looking indicators suggesting further momentum could be lost in the fourth quarter. In particular, inflows of new business have almost stalled, with September seeing the smallest increase since 2009, and business expectations about the year ahead remain stuck at one of the gloomiest levels since at least 2012.’

Pound US Dollar Outlook: Will a Strong US Jobs Market Buoy USD?

Looking ahead to this afternoon, the US Dollar (USD) could edge up against the Pound (GBP) following the release of September’s non-farm payrolls.

If a higher than expected number of jobs are added to the US economy, Dollar sentiment will rise.

Meanwhile, the Dollar could make further gains if data reveals that the US unemployment rate has edged down.

If unemployment edges lower, revealing the strength of the labour market, the Pound US Dollar (GBP/USD) exchange rate is likely to slide.

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