Pound to Dollar Rate Slips from Three-year High

GBP USD Exchange Rate Gains Subdued by Soft Data 

The pound touched a three-year high against the dollar in the early hours of Tuesday morning as traders bet that Britain’s vaccine rollout will help the nation’s economic recovery gather momentum. However, the UK currency retreated soon after as concerns over the new Indian strain of the coronavirus outweighed bets on the recovery. Having hit 1.425 – the pound vs dollar rate’s highest level since mid-2018 – the pair’s gains dissolved, with the government’s plan to fully reopen the economy on 21 June hanging in the balance.

A record increase in British manufacturing activity last month was fuelled by a surge in new orders as the UK economic recovery from the pandemic began to gather pace, according to a survey released on Tuesday. The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) jumped to 65.6 in May from 60.9 the previous month, marking the highest reading since the survey began in 1992.

Markit’s survey showed that export orders grew at the fastest rate on record. However, the American-British information provider stressed that this was driven mainly by larger companies, with smaller manufacturers experiencing less demand.

US Manufacturing Accelerates

Two reports detailing the health of the US manufacturing sector hit the headlines yesterday, with both showing production growth at factories accelerated in April as client demand increased. However, firms in the sector also reported worrying supply chain disruption, work backlogs, and problems recruiting staff.

IHS Markit’s Manufacturing Purchasing Manager’s Index (PMI) came in at 62.1 for May, increasing from 60.5 the previous month, and surpassing economists’ forecasts of 61.5. New orders accelerated at their fastest pace since 2007 when the survey began, boosted by domestic and foreign client demand as Covid-19 restrictions were loosened and vaccine rollouts ramped up. However, cost pressures emerged, forcing manufacturers to raise their prices by the most in the survey’s 14-year history.

The Institute of Supply Management’s Manufacturing PMI survey painted a similar picture, leaping to 61.2 in May, from 60.7 in April, demonstrating rapid growth against a backdrop of work backlogs and recruitment concerns.

Further details of the report showed that the Employment Index dropped to 50.9 in May from 55.1 in April and the Prices Paid Index also declined to 88 from the 13-year high of 89.6 in April, while the New Orders Index ticked up to 67 from 64.3.

Looking Ahead

The UK Markit Services PMI is slated for release today.

It’s a busy day in the data calendar over in the US tomorrow, with several notable reports scheduled for release, including: ADP Employment Change, Initial Jobless Claims, the Markit Services PMI and the ISM Services PMI.

Get in touch to discuss these factors in further detail ahead of your currency exchange.