Pound US Dollar Exchange Rate News: GBP/USD Wavered amid Weakening UK Factory Activity

May 2, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Wavered amid Weakening UK Factory Activity

Pound (GBP) Undermined by Downbeat Factory Activity

The Pound (GBP) struggled for demand against many of its peers on Tuesday as the latest manufacturing PMI highlighted flagging factory demand.

The final reading for the S&P Global manufacturing PMI showed a three-month low as slowing demand continued for the flagging sector. Despite edging up slightly from preliminary estimates, manufacturing fell from 47.9 in March to 47.8 in April. A 15th consecutive month of declining new export orders pointed to a struggling sector. Rob Dobson, Director at S&P Global, said of the latest data:

‘The UK manufacturing sector remained in the doldrums at the start of the second quarter. Output and new orders contracted, as manufacturers felt the impacts of client uncertainty, destocking and tightening cost controls.

‘There was no escape from the subdued mood of the market, with both domestic and export customers remaining reticent to commit to new contracts.’

Elsewhere, the British Retail Consortium (BRC) revealed that shop price inflation has finally peaked, as it fell to 8.8% from 8.9% in March. The biggest contributor to falling prices came with discounted clothing and furniture. However, the cost-of-living crisis still has a long way to go before households can start to recover as food inflation hits a new all-time high. Helen Dickinson, BRC Chief Executive, said of the situation:

‘Overall shop price inflation eased slightly in April due to heavy spring discounting in clothing, footwear, and furniture. However, food prices remained elevated given ongoing cost pressures throughout the supply chain.

‘We should start to see food prices come down in the coming months as the cut to wholesale prices and other cost pressures filter through.’

US Dollar (USD) Supported by Expectations of Final 25bps Rate Hike

Meanwhile, the US Dollar (USD) held onto modest gains in the wake of stronger-than-expected ISM manufacturing PMIs, lending further support for another 25bps interest rate hike from the Federal Reserve.

With the Fed entering its two-day policy meeting ahead of the interest rate decision on Wednesday, the US Dollar could continue to operate on market sentiment and elevated rate hike expectations in the meantime. With a stronger-than-expected reading in the ISM manufacturing PMI printing on Monday, despite remaining in contraction territory, gave further support for the Fed to continue its monetary policy.

Market analysts are pricing in one more hike from the Fed, with expectations of a 25bps hike sitting at a 96.8% probability. However, the focus will be on the accompanying statement from Fed Chair Jerome Powell. Any hints at a pause in the monetary policy could hinder the ‘Greenback’.

GBP/USD Exchange Rate Forecast: US Labour Market Data to Weigh on the Greenback?

Looking ahead, the Pound US Dollar exchange rate could see further movement with the release of the latest JOLTs job openings. With an expected decline in the number of job openings, the US Dollar could soften. A predicted fourth consecutive month of declining vacancies, a two-year low, could further point to a rapidly cooling labour market, paring rate hike bets from the Fed.

Meanwhile, a lack of economic data could leave the Pound exposed to market sentiment, and with a flurry of economic headwinds, Sterling could stutter further.

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TAGS: Pound Dollar Forecasts