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Pound Sterling to US Dollar Exchange Rate Losses Limited Following Shocking US Manufacturing Contraction

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Pound to US Dollar Exchange Rate Avoids Worst Levels despite Brexit Jitters

Despite rising weakness in the Pound (GBP) amid revived no-deal Brexit fears, the Pound Sterling to US Dollar (GBP/USD) exchange rate has been able to avoid its worst levels as the latest US data has also led to fresh weakness in the US Dollar (USD).

Still, unless the Pound finds some upcoming support or the US Dollar’s weakness deepens, GBP/USD could be in for another week of losses.

GBP/USD slumped from 1.2471 to 1.2291 throughout last week, and is still sliding. At the time of writing, GBP/USD was trending close to the level of 1.2240, though it has managed to hold above yesterday’s three-week-low of 1.2212.

With more key US data on the way this week, the US Dollar could take more focus in Pound to US Dollar exchange rate movement unless there are surprising developments in UK politics or Brexit.

Pound (GBP) Exchange Rates Unappealing as Markets React to UK Government’s Brexit Plans

After holding its ground at the beginning of the week amid hopes that the UK government was preparing proposals that could lead to a softer Brexit, the Pound has tumbled since yesterday.

Hopes for a softer Brexit deal were ultimately short-lived. The government’s details for its Brexit plans are reportedly trickling out; and analysts doubt the plans for alternatives to the controversial Irish backstop will sway the EU.

According to Analysts at Daiwa:

‘the substance reported in the press suggests proposals that have minimal chance of being agreed by the EU, and seem designed principally to allow Johnson to blame the Europeans for any failure to reach a deal before the end of October.’

The EU maintains that the Irish backstop is an important way to maintain a soft border between Ireland and Northern Ireland, and has thus far yet to agree that any suggested alternatives are workable.

UK Prime Minister Boris Johnson has indicated that if the EU does not agree to his proposals, he could aim for a no-deal Brexit. This is keeping Sterling under pressure, and today’s disappointing domestic construction PMI certainly didn’t help.

US Dollar (USD) Exchange Rates Avoid Major Losses despite Shocking US Manufacturing Data

The US Dollar has benefitted from safe haven demand in recent weeks, amid global trade and slowdown concerns.

However, concerns that the US economy is also slowing, as well as speculation of a possible US recession, continue to cast a shadow over the US currency.

As a result, yesterday’s surprising contraction in US manufacturing PMI spooked investors and knocked the US Dollar back from the day’s highs.

ISM’s key US manufacturing PMI from September unexpectedly worsened to 47.8, missing the forecast growth of 50.1 and marking the worst figure for the print in over a decade.

Still, the US Dollar was once again fairly steady and resilient today. Despite the poor US data, the US economic outlook and higher interest rates leave the currency more appealing than major rivals overall for now. According to Michael Hewson, Analyst at CMC Markets:

‘Yes US manufacturing is disappointing but it’s no more disappointing than the Eurozone PMIs (Purchasing Managers’ Index surveys) we saw’

Pound to US Dollar (GBP/USD) Exchange Rate May Strengthen if Upcoming US Data Disappoints Too

The Pound will continue to be driven by UK politics and Brexit for the remainder of the week, so volatility is to be expected for the British currency.

With the Pound unlikely to find much in the way of solid support amid broad Brexit uncertainties, the Pound to US Dollar (GBP/USD) exchange rate may see stronger gains if the US Dollar falls.

US manufacturing PMI data disappointed investors yesterday, and with the US economic outlook seemingly worsening, Federal Reserve interest rate cut bets are rising as well.

As a result, if tomorrow’s upcoming US non-manufacturing PMI from ISM and factory orders stats disappoint, the US Dollar could be in for further losses.

Friday’s key US Non-Farm Payroll report, a print the Fed pays close attention to, could also be highly influential for the Pound to US Dollar (GBP/USD) exchange rate outlook.