The pound vs dollar rate failed to cling onto Monday’s gains, which saw the pair edge back above 1.39, after it was dragged lower by domestic uncertainty yesterday. Anticipation of Thursday’s Bank of England (BoE) policy decision and the UK local elections appeared to dampen buying support for the pound – outweighing upbeat manufacturing numbers.
The May elections could indicate the extent to which recent Downing Street scandals have affected voter confidence in Prime Minister Boris Johnson, and if political instability is imminent. Meanwhile, the Scottish National Party says if it wins a majority in tomorrow’s election for the devolved Scottish Parliament – which will be held alongside the UK local elections – the assembly would pass its own bill to hold a second referendum by the end of 2023.
The UK manufacturing sector’s growth accelerated in April as production increased for the 11th month in a row. The IHS Markit/CIPS UK manufacturing purchasing managers’ index (PMI) jumped to 60.9% – its highest reading since 1994 and surpassing economists’ forecasts of 60.7%.
The multi-year record growth was fuelled by a third straight month of higher new orders, as client confidence grew following the reopening of large swathes of the economy. Employment also rose for a fourth straight month in the sector, driven by the increase in business. However, supply chain delays caused by Brexit and Covid-19 and input shortages pushed prices up again, triggering fears of inflation.
Overnight, the pound to dollar rate steadied itself, before climbing back above the 1.39 benchmark.
US factory orders rebound in March
New orders for goods made in the US bounced back in March and business spending on equipment was stronger than forecast. Factory orders were boosted by strong domestic demand, although growth could ease because of bottlenecks in the supply chain. Figures released by the Commerce Department on Tuesday showed that orders increased 1.1% in March having fallen 0.5% in February. Economists had forecast that factory orders would rebound 1.3%.
The goods and services trade balance – a balance between exports and imports of total goods and services – released by the Bureau of Economic Analysis and the US Census Bureau also hit the headlines yesterday, registering at $-74.4B above forecasts of $-74.5B in March. While the negative value shows trade deficit, the slight improvement was a move in the right direction for the dollar.
A bare economic calendar in the UK today means investor attention will turn to tomorrow’s BoE May policy announcement. With no change expected, the pound could feel the weight of the central bank maintaining their dovish policy outlook for the foreseeable future.
A slew of data from the US today includes the latest ADP employment change reading, Markit services PMI and ISM Services PMI.