Pound US Dollar Exchange Rate News: GBP/USD Climbed Despite OPEC Announcing Crude Oil Production Cuts

April 3, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Climbed Despite OPEC Announcing Crude Oil Production Cuts

US Dollar (USD) Supported by OPEC Production Cuts

The US Dollar (USD) came under increased selling pressure on Monday despite the increasingly cautious market mood in the wake of the Organisation of the Petroleum Exporting Countries (OPEC+) decision to cut the production of crude oil.

In a move that sent shockwaves through the markets, the OPEC+ are hoping the limited production will drive the price of oil back up. With WTI crude plummeting below $75 a barrel for much of the past month, the move could make central bank’s jobs harder. The Federal Reserve already has a difficult task before them, and this move could pile extra pressure as they contend with inflationary pressures. Tamas Varga, Analyst at PVM, warns of the wider issue with the production cut:

‘Central banks might not deviate from the course of slowing down the hike in borrowing as their views are chiefly shaped by core inflation figures, which will not be as much affected by stronger oil prices as headline data.’

The move could force the Fed to continue rising interest rates to battle soaring inflation, which could provide some much-needed support to the ‘Greenback’. Markets have priced in a 60% probability of a 25bps rate hike in May, considerably higher than a 48% chance on Friday.

Pound (GBP) Undermined by Flagging Manufacturing Sector

The Pound (GBP) found some modest strength against some of its rivals on Monday amid a turbulent market mood. Final manufacturing PMI came in lower than the preliminary score, weighing on Sterling.

Against the initial estimate of 48.0, the final reading came in at 47.9, far below February’s seven-month high of 49.3. The index marked the eighth consecutive month of contracting activity, as new business remains low amid a subdued market demand. However, on the flipside, new business ticked up modestly as it revealed the first gain in 10 months. Rob Dobson, Director at S&P Global, commented:

‘UK manufacturing production fell back into contraction at the end of the opening quarter, as companies scaled back production in response to subdued market conditions. Although total new orders saw a fractional increase, this followed on from a nine-month sequence of contraction and suggests that order book levels remain low overall.

‘Declining new export order intakes remain a significant drain on demand, offsetting signs of a modest revival in the domestic market.’

GBP/USD Exchange Rate Forecast: US PMIs to sink Greenback Further?

Looking ahead, the Pound US Dollar exchange rate could see more movement with the release of the ISM manufacturing PMI for the US. An expected further slip in the sector could weigh on the US Dollar. Despite the overall index climbed in February, if manufacturing remains in contraction territory, the ‘Greenback’ could slide.

Meanwhile, the trade calendar for the Pound remains sparse throughout the week, so market sentiment and domestic woes could be the biggest drivers of movement.

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TAGS: Pound Dollar Forecasts