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GBP/USD Exchange Rate Forecast: Have the UK’s Gloomy PMI Figures Increased the Chances of a BoE Rate Cut?


GBP/USD Exchange Rate Sinks after UK Service Sector Growth Slumps to 40-Month Low

The Pound US Dollar (GBP/USD) exchange rate is on the back foot today as markets react to some disappointing PMI figures from the UK.

At the time of writing the GBP/USD exchange rate is trading at around $1.2862, having fallen roughly 0.4% since the start of the day’s session.

Pound (GBP) Weakens as PMI Figures Suggest UK Economy to Close 2019 on Back Foot

The Pound (GBP) suffered some broad losses on Friday in response to the UK’s weaker-than-expected PMI figures.

According to data published by IHS Markit, the contraction in the UK’s manufacturing sector deepened this month, with the factory index slumping from 49.6 to 48.3.

However it was the accompanying Service PMI which really rattled GBP investors as it revealed a shock contraction in the sector which accounts for roughly 80% of the UK’s economic growth.

As a result economists expressed concerns that UK GDP could underperform in the fourth quarter.

Thomas Pugh, a UK economist at Capital Economics, said:

‘The first set of regular flash PMIs for the UK will only stoke fears that the economy is heading for a further slowdown at the end of the year. Indeed, even though we think that the PMIs are probably overstating the weakness in the economy a bit, the downturn in the services PMI is especially worrying.’

The gloomy PMI figures are also likely to fuel speculation that the Bank of England (BoE) may need to consider a rate cut in early 2020, whether Brexit is resolved or not.

US Dollar (USD) Mixed as Markets Seek More Clarity on US-China Trade

Meanwhile, trade in the US Dollar (USD) was mixed at the end of this week amidst conflicting US-China trade headlines.

There currently seems to be some confusion over whether the US will press ahead with plans to impose fresh tariffs on China in December.

US President Donald Trump said earlier this week that he stand’s ready to significantly increase the tariffs on China if talks don’t progress as the level he expects.

However, recent headlines suggest the tariffs could be delayed, even if a ‘phase 1’ trade deal isn’t signed off by the end of the year.

As a result of the uncertainty the US Dollar found itself mostly directionless on Friday.

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