Pound US Dollar (GBP/USD) Exchange Rate Rises amid UK Service Sector Expansion
The Pound US Dollar (GBP/USD) is strengthening this morning, following a better-than-expected final UK service sector index. The vital UK sector showed an impressive month-on-month recovery.
At the time of writing, GBP/USD is trading at around US$1.2704, an increase of just over 0.2% from the morning’s opening levels.
GBP to Pare Back Gains amid Lack of Data?
Today, the Pound (GBP) has begun the session on a strong note, following an upward revision to the service index for December.
On a monthly basis, activity expanded significantly compared to November amid hopes of imminent interest rate cuts. Additionally, the final reading printed above the preliminary flash, coming in at 53.4 as opposed to 52.7.
However, Sterling may see its gains limited over the course of today’s trade due to these same rate cut bets. The Bank of England (BoE) is expected to unwind its monetary policy soon, which could prevent GBP from strengthening further.
Elsewhere, a lack of data during tomorrow’s session could see GBP exchange rates limited in directional movement. With little for investors to consider, risk appetite will likely be the deciding factor in GBP’s fortunes. Bearish trade could weaken the increasingly risk-sensitive Pound.
USD to Soften amid Signs of Economic Slowdown?
So far today, the US Dollar (USD) has continued to weaken against most major peers as investors analyse the recent FOMC minutes.
While the minutes showed that Federal Reserve officials favoured keeping interest rates unchanged, the path ahead seemed unclear. The Fed is firmly taking a data driven approach, and rate cuts remain likely beginning from March.
Tomorrow, the latest non farm payrolls data is due to print. In December, the number of jobs created in the US private sector is expected to have fallen from 199,000 to 170,000. If this prints in line with forecasts, USD may weaken against its peers as it could display signs of continued slowdown in the labour market.
Then, the latest ISM services PMI is due to print. In December, sector activity is forecast to have slowed from 52.7 to 52.6, which could bring further pressure to USD exchange rates.
If both data releases slip as expected, it may spark renewed bets on imminent rate cuts from the Fed. March is still priced in as the most likely starting point, and signs of economic weakness in the face of high interest rates could prompt a dovish pivot.