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Pound US Dollar Exchange Rate News: GBP/USD Plummets on Weak UK PMI Figures

May 24, 2022 - Written by John Cameron

GBP/USD Retreats on Disappointing UK PMI Readings

The Pound US Dollar (GBP/USD) exchange rate is dropping this morning in response to the UK’s weaker-than-predicted PMI figures. Meanwhile, the US Dollar (USD) is being buoyed by global recession fears sparked by China’s ongoing lockdown.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.25.

Pound (GBP) Plunges in Response to Weaker-Than-Forecast PMI

The Pound (GBP) is plummeting against the majority of its peers this morning as the latest UK PMI figures print below expectations.

In May, the UK Services PMI dropped dramatically to a 15-month low of 51.8. This is significantly below the previous reading of 58.9 and missing market forecasts of 57.

This is most likely governed by the UK cost-of-living crisis. A sharp increase in energy prices – driven by the Russia-Ukraine war and the new energy price cap – has fuelled a sharp surge in domestic inflation limiting the British public’s disposable income. In turn, this has had a negative effect on the UK’s service activity.

Duncan Brock, Group Director at CIPS, said:

‘The services sector fared worst with business expectations falling by the most since March 2020 when the pandemic first hit. Even the relative buoyancy in orders for travel and hospitality was not enough to rescue service providers from the sinking feeling that recession is knocking on the door.

‘The fear is that the squeeze on household incomes could potentially starve the sector of further bookings as rising costs in energy, food and fuel dominate consumer thinking.’

Moreover, in the same month, UK Manufacturing PMI figures fell from the previous reading of 55.8, missing market predictions of 55, and printing at 54.6.

The index reported production growth fell to a seven-month low as the factory sector was undermined by the Ukraine crisis, high material prices and supply chain bottlenecks.

The downbeat PMI’s are likely to weigh on GBP exchange rates throughout the remainder of today’s session.

US Dollar (USD) Rises on Pound’s Weakness

The US Dollar (USD) is climbing against the weakening Pound this morning.

The US Dollar is being buoyed by renewed global recession fears as Beijing maintains its zero-Covid policy.

Strict lockdowns have seen Chinese export growth fall sharply in recent months. This is stoking recession fears and steering investors towards the safe haven ‘Greenback’.

However, many USD investors are hesitant to place aggressive bets ahead of a speech from Federal Reserve Chair Jerome Powell.

At the Fed’s May policy meeting Powell pushed back against suggestions the Fed could pursue a 75-basis-point hike at its June and July policy meetings.

However, some USD investors remain convinced the Fed will need to be more aggressive with its hikes in order to tame US inflation and they will be looking to Powell for any hints the US central bank may be open to accelerating its tightening cycle again.

GBP/USD Exchange Rate Forecast: Will FOMC Meeting Minutes Boost USD?

Looking ahead, the Pound US Dollar exchange rate may be influenced by the upcoming publication of the minutes from the Federal Open Market Committee’s (FOMC) May meeting.

Will a hawkish tone continue to underpin USD exchange rates?

As for the Pound, the Confederation of British Industry’s (CBI) distributive trades may weaken its appeal. Analysts expect distributive trades to remain low in May, further weighing on the UK’s economic recovery.

In addition, GBP exchange rates are likely to remain exposed to Brexit developments. If the UK government makes unilateral amendments to the Northern Ireland protocol, it may trigger a UK-EU trade war.

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