This week’s slew of impressive UK ecostats have not been enough to stop the British Pound to US Dollar (GBP/USD) exchange rate from slumping, as Brexit uncertainties persist and the US Dollar sees strong gains in reaction to global growth speculation. Still, strong UK data did help the Pound to recover from its worst levels and the US Dollar rally is running out of steam, so the pair is edging higher today.
After opening this week at the level of 1.3048, GBP/USD quickly tumbled and by the time of writing on Friday had shed all of last week’s gains.
GBP/USD touched on a low of 1.2854 yesterday, which was the worst level for the pair since November 2019. However, GBP/USD has since rebounded slightly and is trending closer to the level of 1.2910 at the time of writing today.
With next week’s UK economic calendar quieter, the Pound outlook could be driven more by Brexit developments and rival movement.
GBP Exchange Rates Find Support as UK Manufacturing Outlook Better than Expected
One of the weaker aspects of Britain’s economy, the manufacturing sector, is reportedly performing better than expected this month.
Topping off a week of strong UK economic data, today’s UK PMI projections for February gave investors more confidence that Britain’s economy could rebound in 2020.
While services slipped slightly more than expected to 53.3, the manufacturing PMI escaped the expected contraction of 49.7 and instead bounced from last month’s stagnant 50.0 to 51.9.
The strong manufacturing data pulled the overall composite print to a stronger than forecast 53.3.
According to Tim Moore, Associate Director at IHS Markit:
‘The recent return to growth signalled by the manufacturing and services PMIs provides a clear indication that the UK economy is no longer flat on its back, with our GDP nowcast pointing to 0.2% growth through the first quarter of the year.’
Still, despite this stronger data, some analysts warned that the improvement in manufacturing could prove temporary as coronavirus jitters worsen and could impact UK trade as well.
While Sterling gained on today’s UK PMI data, its potential for gains was overall limited by lingering concerns over UK-EU Brexit tensions, as well as concerns that the coronavirus could hinder Britain’s economic rebound attempts.
USD Exchange Rate Rally Cools Following Days of Surges
GBP/USD was able to gain a little more easily today due to softer market demand for the US Dollar.
The US currency has seen days of strong performance this week. It has been gaining on both hopes of resilience in the US economic outlook, as well as slightly softer demand for safe havens.
Concerns over the spread of the coronavirus persist, but they have softened slightly from the panic that drove safe havens like the Japanese Yen (JPY) higher. In January.
Slightly softer safe haven demand, as well as domestic weakness hitting the Japanese Yen (JPY), left the US Dollar far more appealing for most of this week.
Market demand for the US Dollar has only softened slightly and the outlook remains strong. However, investors are selling the US currency back from its best levels in profit-taking.
At the end of the week, GBP/USD climbed back away from its worst levels since November amid a combination of strong UK data and investors selling the US Dollar back from its best levels.
GBP/USD Exchange Rate Forecast: Key US Growth Data Could Influence Outlook Next Week
After a week of notable UK data which almost all beat expectations, the Pound has a solid domestic outlook to support it going forward through next week’s quieter UK economic calendar.
Unless next Friday’s UK consumer confidence data is particularly surprising, the Pound is more likely to be influenced by developments in Brexit as well as rival strength throughout next week.
With the US Dollar potentially being influenced by both US data and global risk sentiment, the US Dollar is likely to drive GBP/USD movement in the coming sessions.
Due to weakness in its rival the Japanese Yen (JPY), the US Dollar could continue to benefit from the market’s cautious safe haven demand.
If coronavirus concerns worsen significantly, the US Dollar could weaken to other safe havens like the Yen and Swiss Franc (CHF) again. On the other hand, a surprise rise in risk-sentiment would see the US Dollar fall against currencies more correlated to risk and trade.
Key US data due later in the week could have a solid impact on the US Dollar outlook if it surprises investors. Surprising data could even influence Federal Reserve policy speculation.
US growth rate and durable goods orders will be published on Thursday. Friday’s US PCE inflation stats could also influence the Pound to US Dollar exchange rate.
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TAGS: Pound Dollar Forecasts