The pound awoke from its slumber on Monday having touched a fresh one-month low against the dollar on Friday, at the end of a week that saw it record its worst week in two months against the US currency. The upward movement was prompted by a recovery in risk sentiment across markets after global growth concerns had triggered a broad selloff.
While the pound managed to recover some of its lost ground against the dollar on Monday, it was still pinned below the 1.37 benchmark – and was little moved by data published from the UK economy. The nation’s post-lockdown economic recovery slowed sharply in August, as businesses contended with unprecedented staff and materials shortages. The IHS Markit/CIPS flash Composite Purchasing Managers’ Index (PMI) fell for the third consecutive month, sinking to 55.3 from 59.2 in July – its lowest reading since February and exceeding economists forecast of a drop to 58.4. A reading above 50 indicates growth in the private sector.
IHS Markit said there were clear signs that the economic rebound is slowing after a buoyant Q2, despite the pace of growth remaining slightly above the pre-pandemic average. Chris Williamson, chief business economist at IHS Markit, said: “Despite Covid-19 containment measures easing to the lowest since the pandemic began, rising virus case numbers are deterring many forms of spending, notably by consumers, and have hit growth via worsening staff and supply shortages,”
By this morning, the pound vs dollar rate had nudged above the 1.37 benchmark.
US business activity slows in August
The safe-haven dollar edged lower on Monday as a bounce in Asian stocks boosted risk sentiment, despite the rapid spread of the Delta variant of the coronavirus.
Business activity growth in the US eased off for a third straight month in August as supply shortages and the Delta variant created a speed bump that slowed the rebound from last year’s pandemic-induced recession. The IHS Markit flash US Composite PMI, which monitors the manufacturing and services sectors, sunk to 55.4 – the lowest reading in eight months – from 59.9 in July.
According to Chis Williamson: “Not only have supply chain delays hit a new survey record high, but the August survey saw increasing frustrations in relation to hiring. Jobs growth waned to the lowest since July of last year as companies either failed to find suitable staff or existing workers switched jobs.”
New Home Sales data is released from the US economy today.
US Federal Reserve Chair Jerome Powell, who has largely downplayed the impact of the Delta variant so far, will discuss the economic outlook at the central bank’s Jackson Hole Symposium this week (26 to 28 August). His comments will be carefully monitored by investors for clues about the timing and pace of monetary policy tightening.