The Pound to US Dollar (GBP/USD) exchange rate has declined today after April’s services PMI missed forecasts.
The measure of UK services sector activity grew but not by as much as expected; this ended up panicking Pound traders.
Many economists have concluded that a Bank of England (BoE) interest rate hike on 10th May is now unlikely, given the poor UK data.
Some have even questioned whether the rate hike in November 2017 was advisable, although an interest rate cut is not forecast.
(Last updated 3rd May, 2018)
Following the release of US jobs market data, the Pound to US Dollar (GBP/USD) exchange rate has leveled out today.
This static trading has been caused by an above-forecast ADP employment change figure raising confidence among USD traders.
The data showed 204k jobs added to the US economy in April, above the 198k figure predicted by economists in a Bloomberg survey.
Mark Zandi of Moody’s Analytics identified resilience in the US jobs market, saying;
‘Despite rising trade tensions, more volatile financial markets and poor weather, businesses are adding a robust more-than 200k jobs per month’.
(First published 2nd May, 2018)
Chance of Greater GBP/USD Exchange Rate Gains on UK Services PMI Growth
The Pound (GBP) has risen by 0.3% against the US Dollar (USD) recently and could extend its gains in the near-term on a supportive PMI activity measure.
The PMI measuring services sector activity will be out on 3rd May and is predicted to show growth during April.
Higher services sector output is a key contributor to UK economic growth, as it covers areas such as retail sales, financial services and tourism.
As such, if the upcoming reading matches or exceeds forecasts then the Pound to US Dollar (GBP/USD) exchange rate could rally.
Risk of GBP/USD Exchange Rate Decline on UK Production Slowdown
Past the imminent services sector data, the Pound could struggle against the US Dollar on 10th May when UK manufacturing and industrial production data comes out.
Although levels of month-on-month industrial production are tipped to rise in March, year-on-year industrial and manufacturing output is expected to decline.
Economists may blame such results on the poor weather seen during the month, but forecast-matching slowdowns could still risk GBP/USD exchange rate losses.
US Dollar to Pound (USD/GBP) Exchange Rate Forecast to Rally on Jobs Market Growth
The US Dollar (USD) could rise sharply against the Pound (GBP) on 4th May, when two major measurements of the US jobs market will be released.
These will be April’s change in non-farm payrolls stats and unemployment rate reading, both of which have been forecast positively.
The payrolls figure measures the number of new jobs added to the US economy and is tipped to show a rise from 103k positions in March to 192k in April.
The payrolls reading is known for being volatile, however, so the actual result may be significantly higher or lower than the forecast range.
More simply, levels of unemployment are predicted to have fallen from 4.1% to 4%, which could spark a clear USD/GBP exchange rate rise.
Are US Dollar to Pound (USD/GBP) Exchange Rate Losses ahead on Inflation Rate Slowdown?
Looking further ahead, the US Dollar to Pound exchange rate (USD/GBP) could struggle in the week starting 7th May when inflation rate data will be released on the 10th.
The figures for April are forecast to show slowing levels of annual inflation, both for the basic reading and for core data that doesn’t count fuel and food prices.
Falling levels of inflation are unlikely to support the US Dollar, given that this reduces pressure on the Federal Reserve to consider raising interest rates.
At present, there is considered to be an 86% chance of a Fed interest rate hike in June this year; any threat to such a hike could worsen US Dollar exchange rates.
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