Pound US Dollar Exchange Rate News: GBP/USD Firmed on Stronger-than-Expected UK PMIs

March 3, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Firmed on Stronger-than-Expected UK PMIs

Pound (GBP) Buoyed by Rebounding Service Sector

The Pound (GBP) enjoyed strong gains on Friday as the final reading for services PMI printed better-than-expected. Revised higher from a 53.3 preliminary reading, services jumped to 53.5, the quickest pace of improvement in eight months.

Exceeding forecasts when they first printed, the rebound in the service sector highlights a sector that finally returned to growth. Accounting for more than 80% of the UK’s economic output, the return to form buoyed GBP investors on a strong economy. Dr John Glen, Chief Economist at the Chartered Institute of Procurement and Supply (CIPS), said of the latest reading:

‘Spring fever gripped the services sector early last month as supply chain managers reported a big leap in activity and the first improvement for half a year.

‘Companies enjoyed renewed customer confidence with the highest level of new orders in nine months. Improvements in the global marketplace made the wheels of activity turn a little faster and levels of export business rose for the third month in a row’.

However, limiting these gains could the waning confidence in the post-Brexit trade deal. Prime Minister Rishi Sunak expected a tough time to win over his critics after announcing the Windsor Framework. With vocal opposition from within his own Conservative party, political volatility could weigh on Sterling. Former PM Boris Johnson announced his opposition to the deal, citing:

‘We must be clear about what is really going on here. This is not about the UK taking back control. This is the EU graciously unbending to allow us to do what we want in our own country, not by our laws, but by theirs.’

US Dollar (USD) Undermined by Improving Risk Sentiment

Meanwhile, the US Dollar (USD) struggled for demand as risk appetite improved on the back of stronger-than-expected economic data from China.

With the latest PMIs far exceeding forecasts, supporting the world’s second largest economy’s recovery, safe-haven flows dried up. Global market sentiment cheered the news as investors sought riskier assets, weighing on the safe-haven US Dollar.

GBP/USD Exchange Rate Forecast: USD to Recover on Improving PMIs?

Looking ahead, the Pound US Dollar exchange rate could see further movement with the release of ISM non-manufacturing PMIs. With an expected improvement to 54.5, the latest figure could propel the ‘Greenback’ higher.

Meanwhile, the Pound could be left to market sentiment amid a lack of economic data to see out the week. The riskier nature of Sterling could slide if sentiment shifts in the US Dollar’s favour.

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TAGS: Pound Dollar Forecasts