GBP USD Winning Streak Ended by Dollar Gains

GBP USD Exchange Rate Weakens as Investors Seek Safe-Haven Currencies 

The pound was full of cheer over the festive period, breaking through the 1.35 resistance level against the dollar for the first time since November – having languished below 1.32 on 19 December. In the absence of notable economic data over the tight Christmas period, the UK currency was propelled higher by stronger risk sentiment, prompting a move away from the safe-haven dollar.

The risk-on mood came as market participants chose to ignore the explosion in Omicron cases, preferring to focus on the low hospitalisation numbers and studies showing the new variant is less severe than Delta. However, one negative headline about Omicron could derail risk sentiment and boost investor appetite for the dollar.

The pound’s winning streak ended yesterday as the dollar celebrated 2022 with gains amid a positive new year mood, causing GBP USD to slip below 1.35.

Dollar makes strong start to 2022

The dollar has started 2022 on a firm footing. This marks a reversal in fortunes for the US currency, which was subdued by an uplift in risk-taking by investors over Christmas.

Finalised US Markit manufacturing Purchasing Managers’ Index (PMI) figures for December were in focus across the pond on Monday.

The final PMI reading for the US manufacturing sector from IHS Markit was revised slightly downward to 57.7 from the flash reading of 57.8 – below November’s level of 58.3. Material shortages and supplier delays were blamed for dragging the index down.

New orders rose at the slowest pace for a year, which was attributed to a reluctance to place orders before inventories were worked through. Work backlogs rose sharply but still represented the slowest since February.

Looking ahead

The UK’s economic calendar eases back into action today following the Christmas break with the release of the Markit manufacturing PMI for December – which economists expect to remain at 57.6.

The ISM manufacturing PMI for December is slated for release from the US economy today – with economists forecasting it to edge lower from 61.1 to 60.2. The ISM manufacturing employment index – a key component of the manufacturing PMI – is also expected to slip slightly.

A busy week in the US calendar sees several key data sets hit the headlines over the coming days: ADP employment on change (Wednesday), ISM services PMI (Thursday) and nonfarm payrolls (Friday).

Investors will get a closer look at the Fed’s monetary policy outlook on Wednesday when minutes of the December FOMC meeting are released – with the pace of rate hikes, the decision to taper asset purchases and when the central bank will start reducing its balance sheet in focus.

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