GBP to USD Forecast: Sterling Weighed Down by Weak Manufacturing Data

Pound to Dollar Rate Pushed Higher by Falling Covid Cases and Weak Dollar

UK Manufacturing Sector Contracting at Fastest Rate in Eight Years

The pound to US dollar rate hit the ground running in 2020, before being tripped up by soft UK data yesterday. The pair slid back below the 1.32 level after it was revealed that the manufacturing sector contracted at its fastest rate since 2012. The slowing global economy restricted domestic demand, causing factory output in the UK to fall at its fastest rate in eight years in December. The IHS Markit UK Manufacturing Purchasing Managers’ Index, which provides an output gauge for the sector, fell to 45.6 from 49.1 in November; its lowest since July 2012 – anything below 50 means the sector has shrunk.

US Jobless Claims Edge Lower

Meanwhile, the US dollar – and economy – took encouragement from economic data of a more sanguine nature. The number of American citizens making jobless benefit claims edged lower last week. The Labor Department report revealed that initial claims dipped to 222,000; a decrease of 2,000 from the previous week’s revised level of 224,000. Economists had expected the claims figure to edge up to 225,000. This positive reading for the US job market comes at a time when data suggests new claims are generally trending slightly higher. The jobs market continues to demonstrate its resilience, despite some other parts of the economy showing signs of weakness, such as a slowdown in manufacturing and lacklustre business investment.

The seasonally adjusted IHS Markit US Manufacturing PMI ticked down to 52.4 in December’s final reading. The data indicates that economic activity in the US manufacturing sector continued to expand last month – albeit at a modest pace. The sustained recovery from the stagnation experienced over the summer was supported by a rise in new business and a further upturn in production.

Looking Ahead

The pound versus dollar rate will spend today digesting a slew of data, including UK Mortgage Approvals and the US ISM Manufacturing PMI. The week concludes with the release of the latest FOMC meeting minutes, which will provide an indication of the US Federal Reserve’s monetary policy stance.

Monday kicks off with the UK and US Markit Services PMI. Perhaps most significantly, MPs head back to work after Parliament’s Christmas recess, which could provide the pound v dollar rate with some much-needed clarity about the likelihood of a no-deal Brexit.

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.