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Pound Sterling US Dollar (GBP/USD) Exchange Rate Unable to Benefit from UK Service Sector Growth

US Dollar Currency Forecast

Pound Sterling US Dollar (GBP/USD) Exchange Rate Fails to Capitalise on Steady UK Services PMI

A better-than-expected uptick in the UK services PMI was not enough to give the Pound Sterling to US Dollar (GBP/USD) exchange rate a boost.

Even though the service sector demonstrated robust growth in August, increasing the odds of a solid third quarter gross domestic product reading, the mood towards Pound Sterling (GBP) remained bearish.

Lingering uncertainties surrounding Brexit, and the future of Theresa May’s Chequers plan, kept GBP exchange rates under pressure, with the odds of a no-deal Brexit still looking uncomfortably high.

Nevertheless, the positive showing from the services PMI bodes well for the underlying health of the UK economy.

As Chris Williamson, Chief Business Economist at IHS Markit, commented:

‘Faster service sector growth comes as much-needed welcome news after disappointing manufacturing and construction PMI surveys in August. The survey data indicate that the economy is on course to expand by 0.4% in the third quarter, a relatively robust and resilient rate of expansion that will no doubt draw some sighs of relief at the Bank of England after the rate hike earlier in the month.’

Global Trade Worries Continue to Benefit US Dollar (USD) Exchange Rates

Signs of weakness in the latest Chinese services PMI put additional pressure on the Pound Sterling to US Dollar (GBP/USD) exchange rate, meanwhile.

With the world’s second largest economy showing evidence of slowing in response to global trade jitters the appeal of the safe-haven US Dollar (USD) naturally improved.

As the Trump administration continues to dangle the threat of another US$200 billion worth of trade tariffs against China USD exchange rates remain on a fairly solid footing.

Even so, the US Dollar could come under pressure if July’s US trade balance shows a widening of the deficit, potentially encouraging further protectionist measures from the White House.

The GBP/USD exchange rate may also find some gains ahead of Friday’s US non-farm payrolls data, in spite of forecasts pointing towards a fresh dip in the headline unemployment rate.

Extended Term for BoE Governor Carney to Prompt Pound Sterling US Dollar (GBP/USD) Exchange Rate Rally

While speculation over Brexit is likely to remain a drag on the Pound Sterling to US Dollar (GBP/USD) exchange rate developments at the Bank of England (BoE) could encourage a rally.

If Governor Mark Carney is confirmed to have extended his stay with the Bank the Pound could trend sharply higher across the board, with markets keen for greater continuity as Brexit approaches.

On the other hand, GBP exchange rates look vulnerable to further losses if Carney ultimately sticks with his original plan to depart the BoE in June 2019.

The latest UK consumer inflation expectations survey may also offer the GBP/USD exchange an opportunity to return to an uptrend.

As long as expectations continue to point towards elevated levels of inflation running above the BoE’s 2% target hopes of a more hawkish policymaker outlook are likely to improve.

This could offer the Pound Sterling to US Dollar (GBP/USD) exchange rate some fresh support, even though higher inflation is still eroding domestic wage growth and constraining consumer spending.