Pound to Dollar Rate Consolidates Gains

Pound to Dollar Rate Consolidates Gains

The pound, which clawed its way up from multi-month lows last week, continued its recovery on Monday before hitting a speed bump having broken through the 1.36 barrier. However, the UK currency received a boost on Tuesday morning from the latest IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) survey.

Firms in the UK’s dominant services sector hiked prices at a record pace in September as they contended with surging cost pressures and plummeting new orders due to supply issues and staff shortages. The closely monitored survey showed that new order growth weakened for the fourth consecutive month, with new business increasing at its slowest pace for six months.

Overall service sector output exceeded expectations, however, with the survey posting a reading of 55.4 last month, up from the six-month low of 55 registered in August and surpassing economists forecast of 54.6.

According to Tim Moore, economics director at IHS Markit: “The supply chain crisis put a considerable brake on recovery in the UK service sector during September. Survey respondents widely noted that shortages of staff, raw materials and transport had resulted in lost business opportunities. Consequently, new orders expanded at the slowest pace since the end of the winter lockdown, while backlogs of work accumulated as service providers struggled to find candidates to fill vacancies.”

By this morning, the pound vs dollar rate was hovering just above the 1.36 level.

US services activity continues to grow

The dollar was firm Tuesday ahead of the closely watched Nonfarm Payrolls at the end of the week, which could prompt the Federal Reserve to start tapering stimulus imminently. The US currency was also supported by an equity sell-off and safe-haven demand amid concerns surrounding the risk of global stagflation.

Activity in the US services industry – which accounts for more than two-thirds of domestic economic activity – ticked up in last month, but growth is being hindered by an ongoing shortage of inputs and subsequent resulting high prices as the pandemic persists. The Institute for Supply Management (ISM) survey reported on Tuesday that “ongoing challenges with labour resources, logistics, and materials are affecting the continuity of supply.”

The ISM’s non-manufacturing activity index rose to 61.9 in September from a reading of 61.7 the previous month. Anything over 50 indicates growth in the services sector. Economists had forecast the index would drop to 60.

Looking ahead

The Markit Construction PMI for September is published in the UK today and is forecast to slip lower.

The ADP Employment Change reading for September is scheduled for release from the US economy today.