Pound sterling struggled to find support on Monday as it was labelled amongst the worst performers of the day. Today marked the release of the UK construction PMI which came in above predictions, though the lesser of two PMI releases this week, the positive figures suggest growth in the UK economy and provides optimism for tomorrows UK services PMI.
Weak GBP Loses Footing Against Strong USD
Last week saw the rally of the pound following Thursday’s Bank of England (BoE) interest rate decision which saw the interest rate remain steady at 0.75%. Since then, the pound traded at a higher rate, edging above many of its rivals, including USD. However, to start this week, pound sterling is now the one on the backfoot as it begins it EU-UK Brexit negotiations. Meanwhile, the US dollar has built strength to start the week after the ISM manufacturing index surprised the market by jumping up to 50.9 from 47.8 in December, the highest figure since July.
As the negotiations between the UK and EU continue, this will likely shape the direction of GBP in the months ahead. With UK PM Boris Johnson stating the UK will settle for nothing less than a free trade agreement like Canada, the weak sentiment is likely to continue until progress is shown. For the USD, the next major data announcement will come later today as they unveil their factory orders figures for December.
PMI Data Could Help the Sterling Recover
Earlier this morning (Tuesday) saw the release of the UK’s construction PMI which came in above expectations of 46.6 at 48.4. Though this data release did not sway the GBP’s standing much, it did provide optimism for investors that tomorrow’s arguably more important service PMI could follow suit. This is what investors will be hoping for as the services PMI can be an important factor in determining the UK’s GDP figure. If a positive result is returned, the GBP will likely trade higher and pull itself out of its current rut. Conversely, should the service PMI decline, GBP is likely to sharply decline as confidence in the currency will diminish.
But Brexit Negotiations Could See the Pound Sterling Slide Lower
Brexit has provided plenty of headaches for GBP investors and it looks to be showing little signs of fading away any time soon. The negotiations between the EU and the UK began yesterday with both parties laying out their intentions before starting the talks. The UK government remained firm on the idea that they will not continue abiding by the EU laws in order to simplify the trade talks. The governments strong stance worried some as the possibility of a no-deal Brexit came to light once more. Previous drops in GBP have been caused by the fear of a no-deal Brexit and yesterday was no different. Investors want to steer as far clear of a no-deal as possible as it would ultimately see the UK enter the unknown, clouded in uncertainty which would likely see the currency drop.
As the negotiations between the UK and EU continue, this will likely shape the direction of GBP in the months ahead. With UK PM Boris Johnson stating the UK will settle for nothing less than a free trade agreement like Canada, the weak sentiment is likely to continue until progress is shown. For the USD, the next major data announcement will come later today as they unveil their factory orders figures for December. Any positive results would see USD build on its strength which has amounted due to the reduce global sentiment.
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.