Pound Sterling Rebounds After UK and US PMI Data Jolts Expectations

April 24, 2024 - Written by John Cameron

STORY LINK Pound Sterling Rebounds After UK and US PMI Data Jolts Expectations

Solid UK business confidence data, together with weaker-than-expected US data has triggered a sharp Pound rally on Tuesday with the current market narrative of US economic out-performance under fresh scrutiny.

The Pound to Dollar (GBP/USD) exchange rate has jumped to near 1.2450 from early lows at 1.2330.

Latest US survey data has again not backed the picture of strength indicated by official data, especially with falling employment in the services sector.

The key element now for GBP/USD and whether a sustained rebound is achievable is whether doubts over the US economy intensify and whether an early Federal Reserve rate cut is seen as back on the agenda.

ING sees the threat of GBP/USD sliding to 1.21 unless US yields decline.

The UK PMI manufacturing index dipped to a 2-month low of 48.7 for April from 50.3 previously and below consensus forecasts of 50.4.

The services sector index, however, strengthened to an 11-month high of 54.9 from 53.1 in March and above consensus forecasts of 53.0.

Input price inflation accelerated sharply in April, but there was a tentative moderation in the rate of increase in prices charged with the slowest rate of increase since February 2021.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence commented; “Early PMI survey data for April indicate that the UK economy's recovery from recession last year continued to gain momentum.

He was still cautious over inflation pressures; “Although selling price inflation cooled slightly, the upturn in costs alongside solid demand suggests firms may seek to raise prices in the coming months.”

He added; “While the improving economic recovery picture is welcome news, the upward pressure on inflation will add to concerns that a sustainable path to below target inflation has not yet been achieved.”

According to ING, UK yields are set to decline further; “The current chorus of optimism on the inflation outlook among key BoE figures, therefore, feels both intentional and significant. And we could see the Bank’s signalling on rate cuts becoming bolder still in the coming days, given the realignment of market pricing has only just begun. The next meeting in a little over two weeks will be key.”

The US PMI manufacturing index retreated to a 3-month low of 49.9 for April from 51.9 previously and below forecasts of 52.0.

The services-sector index also edged lower to a 5-month low of 50.9 from 51.7 previously.

Overall employment declined at the fastest rate since mid-2020 with a notable decline in services-sector jobs.

There was a net easing of upward pressure on service-sector costs and overall upward pressure on output prices eased.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “The US economic upturn lost momentum at the start of the second quarter, with the flash PMI survey respondents reporting below-trend business activity growth in April.

He added; “The more challenging business environment prompted companies to cut payroll numbers at a rate not seen since the global financial crisis if the early pandemic lockdown months are excluded.”

Williamson also notes that inflation pressures had shifted to manufacturing from services.

The latest data is liable to cause fresh confusion over the US outlook.

The reported decline in service-sector jobs is in sharp contrast to strong payrolls data seen over the past few months.

The inflation data also paints a less threatening picture than seen in consumer prices data.

The Euro-Zone PMI manufacturing index retreated to a 4-month low of 45.6 from 46.1 although there was a stronger output reading while the services-sector index increased to an 11-month high of 52.9 from 51.5.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented; “The eurozone got off to a good start in the second quarter.”

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TAGS: Pound Dollar Forecasts