GBP USD Exchange Rate Buoyed by Better-Than-Expected PMI data 

GBP USD Exchange Rate Buoyed by Better-Than-Expected PMI data 

The pound rebounded against the dollar on Thursday following a better-than-expected UK PMI print, but gains were capped by ongoing political risks and recession fears. 

S&P Global’s composite Purchasing Managers’ Index (PMI), covering services and manufacturing businesses, remained at 53.1 in June, above economists’ forecast of 52.6 and unchanged from last month. 

“The economy is starting to look like it is running on empty,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said. 

“Business confidence has now slumped to a level which has in the past typically signalled an imminent recession.”  

Political instability was also on investors’ radar on Thursday, with the Conservative Party contesting two key by-elections: one in Devon and another in Yorkshire. A defeat in either vote for the ruling party would cast fresh doubts over Prime Minister Boris Johnson’s future.  

Recession fears weigh on the dollar

The dollar, which is feeling the pressure of Fed-induced recession fears, stabilised on Thursday. 

Speaking on Wednesday – the start of his two-day testimony to Congress – Federal Reserve Chair Jerome Powell stated that while central bank policymakers want to avoid a recession, it’s “certainly a possibility” as they strive to tame inflation. 

Odds of a recession increased on Thursday by soft US business activity data for June: the S&P Global US composite PMI fell to 51.2 from 53.6 last month – a five-month low; the flash services business activity PMI came in at 51.6 from 53.4 last month – also a five-month low; and the manufacturing PMI dropped to 52.4 from 57 last month – its lowest reading in 23 months. 

Initial claims for state unemployment benefits in the US last week levelled out just below a five-month high, the Labour Department reported on Thursday, suggesting labour market tightness may be starting to loosen. 

Initial jobless claims dropped by 2,000 to 229,000 in the week ended 18 June. Economists expected a bigger decline to 226,000 applications. 

Looking ahead

Retail sales data for May is released from the UK economy on Friday. This is followed by speaking engagements for two Bank of England officials, which investors will monitor for clues about future rate hikes. 

Jerome Powell concludes his two days of testimony in front of Congress on Thursday, speaking in front of House members. Powell’s testimony comes hot on the heels of the Fed’s biggest rate hike since 1994, which saw the central bank lift borrowing costs by 75 basis points last week. 

Two notable data sets hit the headlines in the US on Friday: the Michigan consumer sentiment index for June and new home sales for May.  

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