The pound came within a whisker of reaching fresh highs against the dollar on Friday amid signs that the UK economy is roaring back to life. New data from the Office for National Statistics showed that the UK is rebounding strongly from the latest lockdown, with several economic indicators jumping higher as restrictions were eased.
The IHS Markit/CIPS Flash UK Composite purchasing managers index (PMI) – a measure of private sector activity – hit its highest level since the index began in 1998, driven by strong demand for hotels, restaurants, and other consumer-facing services. This lifted the PMI to 62 in May, from 60.7 the previous month, while the reading for services – the UK’s largest sector, which has been dealt a severe blow by the pandemic – increased to 61.8 from 59.2 in April, the highest rise since 2013.
The surge in value of the pound vs dollar rate also followed a jump in UK retail sales and consumer confidence. However, by the end of trading on Friday, the pair had dropped from a high of 1.42331 to the 1.41 level, where it settled for the weekend after the dollar rallied.
Dollar buoyed by manufacturing data
The dollar edged higher on Friday following the release of stronger-than-expected US manufacturing figures collated by data firm IHS Markit. Its flash manufacturing PMI increased to 61.5 in the first half of May – the highest reading since October 2009 – which followed a final reading of 60.5 in April. Economists had forecast that the index would dip to 60.2.
The US services sector also continued to expand at a robust pace in May, with the PMI recording a new series high of 70.1, up from 64.7 in April. The composite PMI also jumped higher to 68.1 from 63.5.
Commenting on the data, Chris Williamson, Chief Business Economist at the IHS Markit said: “the US economy saw a spectacular acceleration of growth in May, the rate of expansion of business activity soaring well above anything previously recorded in recent history as the economy continued to reopen from COVID19 restrictions,”
The Chicago Fed National Activity Index for April is scheduled for release from the US economy today. A deluge of data from the US on Thursday includes several influential reports, including Durable Goods Orders, Nondefense Capital Goods Orders (excluding aircraft), and the latest Gross Domestic Product reading.
An extremely quiet week for the pound on the data front means it will be influenced by other factors in the coming days.