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Pound US Dollar (GBP/USD) Exchange Rate Recovers Ground even as US Manufacturing Hits 20-Month High

September 23, 2020 - Written by Frank Davies

Rising US Manufacturing Growth Limits Strength of Pound US Dollar (GBP/USD) Exchange Rate

As the US manufacturing PMI rose to a 20-month high the Pound Sterling to US Dollar (GBP/USD) exchange rate struggled to gain any headway.

With the world’s largest economy showing signs of sustained momentum, even in the face of mounting Covid-19 anxiety and political tensions, the US Dollar found fresh support.

However, as the impact of Boris Johnson’s latest set of Covid-19 restrictions began to fade this allowed the Pound to recover some of its lost ground.

After several days of weakness GBP exchange rates staged a modest recovery on the back of September’s UK manufacturing and services PMIs.

Although the service sector failed to hold onto the pace of growth seen in August this still pointed towards a solid gross domestic product performance at the end of the third quarter.

Signs of Weakening UK Retail Industry May Fuel Pound Selling

The mood towards the Pound could sour once again on Thursday, however, if the CBI distributive trades index falls as forecast.

Estimates point to the index dipping from -6 to -10 on the month, reflecting the increasing pressure facing the retail industry in September.

As stronger levels of consumer confidence and spending have previously helped to shore up the UK economy fresh signs of weakness here could weigh heavily on the GBP/USD exchange rate.

With the new Covid-19 restrictions and the threat of a second lockdown having the potential to depress economic activity any evidence of existing weakness within the economy is likely to spook investors.

Unless the retail sector can demonstrate greater resilience in the face of rising anxiety and economic uncertainty the Pound looks set to falter.

An announcement from Chancellor Rishi Sunak may also provoke volatility for GBP exchange rates as he outlines the successor to the ending job furlough scheme.

Fall in US Jobless Claims Set to Shore up USD Exchange Rates

USD exchange rates, on the other hand, may find a fresh rallying point with the release of the latest set of US jobless claims figures.

Investors expect to see a decline in both initial and continuing claims on the week, suggesting an improvement in the health of the labour market.

Signs that unemployment is moving in the correct direction could see the GBP/USD exchange rate trending lower once again.

However, if jobless claims fail to show sufficient improvement this could limit the appeal of the US Dollar, given that unemployment remains at significantly elevated levels in the US.
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