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GBP/USD Exchange Rate Forecast: Do Gloomy PMIs Point to the UK sliding into a Recession this Year?

The Pound US Dollar (GBP/USD) exchange rate is struggling to find support this morning, in response to the publication of the UK’s latest services PMI.

At the time of writing the GBP/USD exchange rate is trading at around $1.2314 this morning, virtually unchanged from its opening rate.

Pound (GBP) Flat as Recession Fears Grow

The Pound (GBP) is on the back foot this morning as the UK’s latest services survey made for grim reading.

Data published by IHS Markit reported a surprise contraction in the service sector last month, with the services index slumping from 50.6 to 49.6, missing expectations of a more modest slide to 50.3.

Analysts warn this points to the UK economy shrinking in the third quarter, with coupled with the contraction in Q2 would see the UK slip into a recession.

Chris Williamson, Chief Business Economist at IHS Markit, said:

‘At current levels the surveys point to GDP falling by 0.1% in the third quarter which, coming on the heels of a decline in the second quarter, would mean the UK is facing a heightened risk of recession.’

US Dollar (USD) Steady in Advance of the ISM Non-Manufacturing PMI

Meanwhile, the US Dollar (USD) is trading in a narrow range this morning as USD investors await the publication of the ISM non-manufacturing PMI.

September survey of the US service sector is likely to be closely watched by markets, after the ISM manufacturing PMI released earlier in the week revealed that a contraction in the US factory sector unexpectedly deepened last month.

Should the service sector have also underperformed last month this is likely to bolster fears that the US economy is slowing.

This in turn may stoke speculation the Federal Reserve could implement additional rate cuts and drive losses in the US Dollar (USD).

Non-Farm Payrolls to Disappoint after Gloomy ADP Employment Figures?

Still to come this week is release of the closely watched US non-farm payrolls figures on Friday.

However expectations are low following the publication of the ADP employment report earlier in the week.

The ADP figures -which are viewed as an earlier indicator for the more influential payroll figures- missed expectations in September, suggesting US employment growth will have remained subdued at the end of the third quarter.

As a result we may see the US Dollar limp over the finishing line this week as a disappointing payroll report is likely to further increase the odds of the Fed cutting rates in the near-term.