Pound US Dollar Exchange Rate News: GBP/USD Weakened on Downbeat UK PMI Data

Modified: Tuesday, 23 May 2023 15:05 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Weakened on Downbeat UK PMI Data

Pound (GBP) Undermined by Downbeat PMIs

The Pound (GBP) struggled for demand on Tuesday as the latest PMIs fell below forecasts, citing a stuttering economy during the cost-of-living crisis.

Both manufacturing and service PMIs slipped below forecasts, with the former falling the most. Against expectations of a modest uptick in factory activity, the manufacturing sector slipped to 46.9 from 47.8 in April. It marked the steepest deterioration in five months amid declining output. Brexit headwinds and intensifying overseas competition weighed heavily on new orders.

Services on the other hand, also saw a slip, as the sector slipped to 55.1 from 55.9, and against expectations of 55.5. Mounting economic uncertainty and soaring borrowing costs weighed on the sector. However, resilience in the travel, leisure, and hospitality businesses buoyed the sector on robust consumer demand. Dr Glen, CIPS Chief Economist said:

‘Activity growth in private sector business softened last month to the lowest since March as subdued customer demand put a dampener on levels of new orders. Uncertainty returned as businesses were worried about higher interest rates impacting on business investment and consumers about their household bills.’

US Dollar (USD) Buoyed on Souring Market Mood

Meanwhile, the US Dollar (USD) strengthened against its rivals amid concerns surrounding the US debt limit debate. Keeping the ‘Greenback’ supported was waning market sentiment, keeping safe-haven flows running. Renewed Federal Reserve interest rate hike bets also lent modest support to the US Dollar.

The latest round of negotiations over the debt limit have once again failed to result in an agreement. President Joe Biden and House Speaker Kevin McCarthy struggled to find a solution after they met on Monday. Biden said of the latest round of talks, calling them ‘productive’:

‘We reiterated once again that default is off the table and the only way to move forward is in good faith toward a bipartisan agreement.’

However, Treasury Secretary Janet Yellen gave a stark warning that if a deal is not made by June 1, the US government will default on their debts and send the financial world spiralling.

GBP/USD Exchange Rate Forecast: UK Inflation to Sour Sterling?

Looking ahead, the Pound US Dollar exchange rate could see further fluctuations with the latest headline CPI inflation reading. A predicted slipping to 8.2% could see interest rate hike bets from the BoE severely pared. However, despite cooling, inflation remains far above the central bank’s target rate of 2%. GBP investors could be looking at the underlying data to see how the BoE will move forward in its monetary policy.

Elsewhere, the US Dollar could see movement with the latest Federal Open Market Committee (FOMC) minutes. Any hawkish comments from the last policy meeting could buoy the ‘Greenback’.

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TAGS: Pound Dollar Forecasts