Pound US Dollar Exchange Rate News: GBP/USD Subdued despite Strong UK Services PMI

Published: Thursday, 24 March 2022 11:00 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Subdued despite Strong UK Services PMI

GBP/USD Muted Following Strong UK PMI Figures

The Pound US Dollar (GBP/USD) exchange rate continues to edge slightly lower this morning, however strong UK PMI figures have tempered Sterling’s losses.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.3188, with minimal movement from today’s opening levels.

Pound’s (GBP) Losses Capped by UK PMI Figures

The Pound (GBP) is subdued against the US Dollar (USD) today, but has found its losses capped by upbeat PMI figures.

March’s services PMI defied expectations to report an improvement in service sector growth. March’s preliminary index printed at 61, above both last month’s 60.5 and the predicted 58.

Conversely the manufacturing PMI underperformed in March, printing at 55.5, down from market forecast 56.7 and the previous 58.

However, the data is still above the line of stagnation.

Chris Williamson, Chief Business Economist at S&P Global, said:

‘The UK PMI surveys indicated a sustained robust pace of expansion in March as the further reopening of the economy from COVID-19 containment measures helped offset headwinds from the Ukraine war, Brexit and rising prices.’

However, high UK inflation remains a source of unease for GBP investors.

The consumer price index soared to a 30-year high in February, jumping from 5.5% to 6.2%. Yesterday’s CPI figures reignited concerns over the UK’s cost of living crisis and continues to exert pressure on Sterling this morning.

Bank of England (BoE) rate hike bets would normally help to offset this pressure on the Pound, however last week’s dovish forward guidance has robbed Sterling of this support.

On Wednesday, meanwhile, the UK Chancellor Rishi Sunak revealed his spring statement and his plans to alleviate some pressure from the cost-of-living crisis.

As expected, Sunak cut fuel duty by 5p and postponed the planned National Insurance hike until summer.

However, whilst Sunak has vowed to support working-class families, his spring statement has come under scrutiny, with experts claiming it will do nothing to ease the cost-of-living crisis in real terms.

Paul Johnson, the director of the Institute for Fiscal Studies thinktank, said:

‘In the face of what the OBR calls the biggest hit to household finances since comparable records began in 1956-57 he has done nothing more for those dependent on benefits, the very poorest, besides a small amount of extra cash for local authorities to dispense at their discretion.

‘Their benefits will rise by just 3.1% for the coming financial year. Their cost of living could well rise by 10%.’

US Dollar (USD) Edges Higher Amid Risk-Off Sentiment

The US Dollar (USD) is trading slightly higher against the Pound (GBP) today as the Russia-Ukraine war sours market appetite.

Reports suggest that peace talks have slowed, with EU leaders stating that Vladimir Putin appears uninterested in a ceasefire.

US President Joe Biden believes there to be ‘clear signs’ that Putin is preparing to use chemical weapons on the streets of Ukraine.

Although seven humanitarian corridors have been agreed to open today, enabling Ukrainian civilians to flee the warzone, Russia has not yet agreed for a corridor to open at the besieged city of Mariupol.

As the severity of geopolitical developments ramps up, investors are flocking to the safe haven currency.

GBP/USD Exchange Rate Forecast: Ukraine Crisis to Dominate Trading Sentiment

For the foreseeable future, Russia’s invasion of Ukraine will likely remain the driving force for the Pound US Dollar exchange rate.

Should Putin activate chemical weapons and escalate his ‘Special Military Operation’, it is likely to place undue pressure on GBP/USD.

Later today, the ‘Greenback’ may be bolstered by employment figures.

The number of US citizens filing for benefits is expected to drop from 214K to 212K, further aiding the US Dollar’s appeal.

Meanwhile, UK retail sales figures may place additional pressure on the Pound tomorrow, as sales growth is forecast to have slowed from 1.9% to 0.6% in February.

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