Easing UK Construction PMI Keeps Pound US Dollar (GBP/USD) Exchange Rate on the Back Foot
The Pound Sterling to US Dollar (GBP/USD) exchange rate trended sharply lower in the wake of September’s UK construction PMI, which proved weaker than forecast.
Investors were disappointed to find that the headline index had slipped from 52.9 to 52.1 on the month, largely driven by a decline in business confidence.
As high levels of uncertainty continue to hang over the economic outlook thanks to Brexit this has dragged on growth within the construction sector.
Tim Moore, Associate Director at IHS Markit, commented:
‘Latest data showed that overall confidence about the year-ahead business outlook was among the lowest seen since the start of 2013. Construction companies continued to note that political uncertainty acted a key drag on decision-making, with Brexit worries encouraging a wait-and-see approach to spending among clients.’
This slowdown suggests that Brexit worries have continued to weigh on the UK economy in the second quarter, although the construction sector only accounts for a small degree of domestic activity.
Pound (GBP) Exchange Rates Vulnerable to Slowdown in UK Service Sector Growth
If the corresponding UK services PMI also shows a decline on the month, however, this could see the Pound shedding further ground against its rivals.
As the service sector is the primary driver of UK economic growth any loss of momentum here would sharply increase the odds of a weaker third quarter gross domestic product.
Unless the sector shows signs of shrugging off political turmoil and uncertainty the GBP/USD exchange rate is likely to remain on a downtrend on Wednesday.
However, if the PMI surprises to the upside this could offer the Pound a strong rallying point against its rivals.
Evidence of resilient growth would go some way to reducing market anxiety over the underlying health of the UK economy, even in the face of continued Brexit worries.
Even so, increased signs of discord within the Conservative Party may also weigh on Pound exchange rates in the days ahead.
Falling US Unemployment Forecast to Boost US Dollar (USD) Demand
The US Dollar (USD) is forecast to find a fresh boost ahead of the weekend, however, on the back of September’s non-farm payrolls report.
Investors anticipate fresh evidence of tightening within the US labour market, with the unemployment rate expected to dip from 3.9% to 3.8%.
Even if the headline change in non-farm payrolls figure disappoints a decrease in overall unemployment could still see USD exchange rates pushing higher.
Forecasts also point towards a slight slowdown in average hourly earnings in September, though, which may well discourage Federal Reserve policymakers.
If domestic wage growth fails to hold steady the odds of the Fed raising interest rates once again in December are likely to fall.
This could give the Pound Sterling to US Dollar (GBP/USD) exchange rate a rallying point on Friday, regardless of any persistent GBP weakness.
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