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Pound US Dollar (GBP/USD) Exchange Rate Slips on Lacklustre UK Service Sector Performance

October 23, 2020 - Written by Frank Davies

Pound US Dollar (GBP/USD) Exchange Rate Stumbles After Underwhelming UK Services PMI

The Pound to US Dollar (GBP/USD) exchange rate came under renewed pressure as October’s flash UK services PMI proved weaker than forecast.

As the headline index dipped from 56.1 to 52.3 on the month this indicated that the sector has struggled to hold onto its initial bout of recovery momentum in the wake of the first Covid-19 lockdown.

While the reading of 52.3 still points towards solid growth within the sector this was not enough to shore up demand for the Pound on Friday.

With both the manufacturing and service sector PMIs also showing an increase in job losses support for GBP exchange rates generally weakened, with markets still fearful of the prospect of an incoming wave of unemployment.

Lack of UK-EU Trade Talks Progress May Dent GBP/USD Exchange Rate

With fresh UK data looking a little thin on the ground in the days ahead the Pound may struggle to return to a stronger footing in the near term.

Ongoing trade talks between the UK and EU could provoke some volatility for the GBP/USD exchange rate, meanwhile, with investors wary of the possibility for a fresh souring in relations.

Unless the talks fail to show signs of progressing towards a potential agreement the lingering possibility of a no-deal scenario looks set to hang over the Pound for some time to come.

Support for the Pound may also weaken on the back of October’s CBI distributive trades index, which is forecast to show a negative reading.

A decline in retail sector strength could put pressure on the GBP/USD exchange rate, given that higher levels of consumer spending and retail activity have previously helped to shore up economic growth.

As long as the threat of a fourth quarter economic slowdown persists this could keep the Pound from making any particular gains against its rivals.

Presidential Election Anxiety Set to Weigh on US Dollar Outlook

Growing anxiety ahead of the imminent US presidential election could limit the US Dollar’s ability to trend higher, though.

The threat of a possible political upset or a contested result looks set to keep USD exchange rates biased to the downside in the days ahead.

Even so, a steady showing from September’s durable goods orders figure could help to keep a floor under the US Dollar in the short term.

Evidence of resilient demand within the world’s largest economy may give investors fresh reason to favour the US Dollar on Tuesday.

On the other hand, if growth in orders slows to near stagnation a sense of concern over the health of the US economy could see the GBP/USD exchange rate gaining fresh ground.
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