Yesterday saw the USD outperform all its rivals and landed itself being named the best performing currency of the day. This strong performance came after USD benefitted from strong economic data. The service sector activity accelerated at the start of the year with the non-manufacturing ISM index rising to 55.5 from 54.9. Whilst ADP also reported its biggest month for private sector job growth in more than 4 years. Meanwhile, GBP has fared well over the past week, but it hasn’t matched that of USD. Nevertheless, the UK’s construction and services PMIs came in above expectations which allowed the GBP to pull itself out of its Brexit concerns, though they continue to weigh on the currency. Friday will see the US’s labour market report which could lead to further gains for USD.
This week saw the release of the UK’s construction and services PMIs. The construction PMI which was released earlier this week, returned a value of 48.4. This figure was higher than the 46.6 forecast and beat last month’s reading of 44.4. Due to the upward swing, GBP rose as sentiment surrounding the UK construction sector and domestic growth rose. Added to this was the services PMI which was arguably more important for GBP’s outlook as this figure contributed to the determination of the UK’s GDP. As the figure came in above predictions of 52.9 at 53.9, beating last month’s score of 50.0. The positive rise in both figures has hinted at an economic rebound, something that investors were hoping would be sparked post-election after the Tory majority in the December elections.
The UK will look to carry on this positive momentum as it looks towards more economic data releases. But Brexit will still limit GBP as negotiations are likely to be difficult, and with the UK striving for a Canadian-style trade agreement, there are likely to be many turns in the road ahead.
Like the UK, the United States had its fair share of positive data releases this week. The US’s non-manufacturing ISM index rose to 55.5 from 54.9. furthermore, ADP also reported the biggest month for private sector job growth in more than 4 years. USD also continues to benefit as a safe-haven currency amid the coronavirus outbreak. Many investors are trading amongst a risk-off environment, which means that many have supported USD as more risk-sensitive currencies like AUD and CAD struggle. However, the USD’s gains may begin to decline as overnight reports on Wednesday claimed that Chinese researchers had found a treatment for patients with the virus. Despite the World Health Organisation (WHO) warning that effective therapeutics were not in existence, the market appeared to shrug off this claim as it instead looked for any signs of optimism.
Friday will mark the release of the United States labour market report. USD investors will be hoping that the economy can keep up its recent run of success as it expects a rise in the non-farm payrolls report. An addition of 160k jobs in January, up from 145k in December is expected. A deviation lower from this expectation could drop USD and allow GBP to recover the 1.30 handle before the weekend. However, any impressive figures could see USD skyrocket as it finishes up the week as one of the strongest performers.
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.