Sterling vs US Dollar Weakens as UK Economy Slows

Pound to Dollar Rate Shrugs Off UK’s Economic Woes

The pound to US dollar interbank exchange rate stands at 1.3273 today. This is -1.74%, or more than -2.25 cents, below sterling’s recent 19-month high against the so-called greenback, its strongest since May 18th 2018, reached on December 12th, at 1.3509.

Sterling has fallen in value against the buck, in part because the UK economy decelerated in December, while America’s economic activity sped up, said trusted statistics released yesterday.

According to watchdog IHS Markit’s “flash” PMIs (Purchasing Managers Indices) for the UK’s services and manufacturing activity this month, the figures fell to 49.0 and 47.4 respectively.

These results were below forecasts for 49.5 for services, and 49.3 for factories, as well as both beneath the 50.0 figure that signals economic growth. This tells us that the UK economy has lost steam, weakening sterling.

US Manufacturing PMI Continues to Expand in December

Meanwhile, looking States-side, IHS Markit’s US services PMI for December rose to 52.2, above both forecasts for 51.9, as well as November’s result of 51.6. Also, US manufacturing activity came in at 52.5 this month, bang on forecasts, and only slightly below November’s 52.6.

This tells us that America’s business activity is both outperforming the UK at present, and in fact accelerating.

This reinforces US Federal Reserve Chairman Jerome Powell’s recent remarks that America’s economy is in a “good place” and cuts the odds that the US central bank will reduce interest rates below their current 1.5%-1.75% in 2020. This tends to support the US dollar.

Looking Ahead

Looking to this week, there are many factors that could affect the GBP to USD interbank exchange rate. These include the new UK Conservative government’s Brexit and spending plans, which may support the UK economy in 2020. They also include news about the US-Chinese trade war, following President Donald Trump’s recently signing the “first phase” trade deal.

They also include economic data, such as today’s UK unemployment figures for October, and the Bank of England’s interest rate decision on Thursday. Meanwhile, US economic releases include today’s industrial production figures for November, and US GDP figures for Q3 on Friday, at 13.30 GMT. So look out for these releases, for their effect on the pound vs US dollar.

If you would like to learn more about factors influencing GBP/USD exchange rates for an upcoming currency transfer, feel free to contact myself, Jonathan Watson, using the form below.