GBP to USD Forecast: Pound Boosted as UK Economy Climbs to 16-Month High

Pound to Dollar Rate Choppy Ahead of BoE Meeting

Uncertainty Eases for UK Firms

The UK Composite Purchasing Managers’ Index (PMI) – which includes both manufacturing and services – rose to a 16-month high in December. Demand appears to be swelling in the wake of last year’s general election, with the services PMI revealing the sector returned to growth for the first time since August 2019. Manufacturing continued to contract, but at a slower pace to the previous month.

Friday’s figures – the latest data to be released ahead of the Bank of England’s (BoE) next meeting of policymakers on Thursday – reduced the chances of an interest rate cut and boosted the pound v dollar rate in the process. However, a bout of profit-taking hit the pound post-PMIs, causing the GBP vs USD rate to dip below the 1.31 level at the end of the week.

US Business Activity Increases

Friday also saw the release of the composite PMI for the US. The measure of activity in businesses posted a 10-month high of 53.1 in January – up from 52.7 in December. The pickup is a result of growth in the services sector, after the manufacturing PMI dipped to 51.7 in January, from 52.4 a month earlier.

Looking Ahead

A huge week in the calendar for the pound begins at a pedestrian pace, with a lack of data until Thursday when the BoE releases its quarterly inflation report. This coincides with the Bank’s much-anticipated interest rate announcement. Speculation that we will see a cut in the cost of borrowing was softened by last weeks encouraging jobs and PMI figures.

Over three and a half years since the EU referendum – and 46 years since joining the bloc – Brexit will finally happen on Friday, now that Boris Jonson’s Withdrawal Agreement Bill is officially law. While this has largely been priced into the market, it could trigger a fresh period of uncertainty for the pound, as both parties attempt to negotiate an all-important trade deal by the end of the year.

The US Federal Reserve is expected to keep US interest rates on hold on Wednesday. However, if the Federal Open Market Committee hints that it might ease monetary policy in the coming months, the dollar could suffer. The announcement is sandwiched between the release of Durable Goods Orders on Tuesday and the latest GDP reading on Thursday. Investors in the dollar will also be keeping a close eye on President Trump’s impeachment trial and the impact of the Coronavirus on the global economy.

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.