Pound to Dollar Rate: GBP/USD Wavers despite US Manufacturing Slump

September 4, 2024 - Written by John Cameron

STORY LINK Pound to Dollar Rate: GBP/USD Wavers despite US Manufacturing Slump

The Pound US Dollar (GBP/USD) exchange rate moved without a clear direction on Tuesday despite a weaker-than-forecast US ISM manufacturing.

This saw the GBP/USD exchange rate trade at around $1.3141 at the time of writing, virtually unchanged from the day’s opening levels.

The Pound (GBP) faced headwinds on Monday as cautious market sentiment and a lack of fresh UK economic data weighed on investor confidence. With a light economic calendar, the Pound found itself vulnerable to losses against safer currencies, although it managed to hold steady against riskier counterparts.

Despite thin trading conditions, the Pound received some support from diminishing expectations of aggressive rate cuts by the Bank of England (BoE). As markets brace for a more measured approach to policy easing from the BoE compared to other major central banks, the currency's downside was somewhat mitigated.

Enrique Díaz-Alvarez, Chief Economist at Ebury, noted:

‘The Bank of England is clearly in easing mode, although the resilience of the UK economy suggests that the pace of MPC rate cuts will be a gradual one. Markets are assigning no more than a one-in-four chance of another cut from the BoE in September, though this may change should upcoming data on the labour market, GDP and inflation surprise expectations.’

However, in the absence of significant domestic catalysts and amid growing market anxiety, the Pound struggled to make substantial gains.

The US Dollar (USD) struggled to garner investor support on Tuesday following a worse-than-expected ISM manufacturing PMI.

The index printed at 47.2 in August, rising from a nine-month low of 46.8 and marginally missing market projections of a more modest deceleration of 47.5. With a score below 50 confirming that activity in the vital US sector is declining, the release revealed a twenty-first month of contraction out of the last 22 months.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted:

‘A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward looking indicators suggest this drag could intensify in the coming months.’

Analysts stated that the downbeat reading and continually weak activity in the sector emphasise the impact of continually restrictive monetary policy by the Federal Reserve, which in turn could bolster expectations of an interest rate cut by the central bank later this month.

However, due to the US Dollar’s safe-haven status, a cautious market mood served to cushion USD’s downside.

Looking ahead, the UK’s finalised services PMI is due for release on Wednesday morning. Confirmation that the vital British sector grew for a tenth consecutive month may bolster GBP exchange rates throughout Wednesday’s session.

Meanwhile, the latest US jobs data could drive notable market volatility. The latest JOLTs job openings report is due to edge slightly lower, with economists estimating that the data will reveal there were 8.1 million job openings in the US in July. Should the data print as forecast, news of cooling employment in the US may reinforce concerns of a weakened US labour market, thereby denting USD.

Additionally, the latest US factory orders data is due for release. Should the data point to a rebound in new orders for US manufactured goods, the ‘greenback’ could garner investor interest amid signs of increased consumer activity in the US.

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TAGS: Pound Dollar Forecasts