Pound US Dollar (GBP/USD) Exchange Rate Falls as UK Output Suffers Second Steepest Fall Since Global Financial Crisis
The Pound Sterling US Dollar (GBP/USD) exchange rate edged down and the pairing is currently trading at an inter-bank rate of $1.2571.
On Wednesday data showed that the UK’s service sector fell close to stagnation in June.
The UK services PMI fell from 51 in May to 50.2 in June due to risk aversion amidst the ongoing Brexit uncertainty.
Commenting on the data release, Chief Business Economist at IHS Markit, Chris Williamson said:
‘The near-stagnation of the services sector in June is one of the worst performances seen over the past decade and comes on the heels of steep declines in both manufacturing and construction. Collectively, the PMI surveys indicate that the economy has slipped into contraction for the first time since July 2016, suffering the second steepest fall in output since the global financial crisis in April 2009.
‘The worsening picture will put further pressure on the Bank of England to add stimulus. For policymakers to not loosen policy with all sector PMI at its current level would be unprecedented in the survey’s two-decade history.’
US Dollar (USD) Rises as on a Hawkish Cleveland Fed President Mester
Speaking in London on Tuesday, US Federal Reserve’s Loretta Mester acknowledged that the risks to the US economy have risen.
However, she noted that the ‘most likely’ outcome would be solid growth of around 2% in 2019.
Making a case against an interest rate cut, the President of the Cleveland Fed said:
‘Cutting rates at this juncture could reinforce negative sentiment about a deterioration in the outlook even if this is not the baseline view.
‘[A cut] could also encourage financial imbalances given the current level of interest rates, which would be counterproductive.’
US Dollar sentiment was left buoyed by Mester’s hawkish speech.
Sterling (GBP) Slumps as Trade Tensions Could ‘Shipwreck’ Global Economy
Meanwhile on Tuesday, Governor of the Bank of England (BoE), Mark Carney warned that the global economy is in a ‘widespread slowdown’.
Sterling sentiment was left dampened following Carney’s speech.
During his speech, Mark Carney emphasised the risks of the ongoing trade tensions between the US and the rest of the world, and stated:
‘Over the past year, the global economy has shifted from a robust, broad-based expansion to a widespread slowdown.’
Carney concluded his speech by stating:
‘Whether current trade tensions shipwreck the global economy or prove to be a tempest in a teacup will have an important influence on the outlook for growth and inflation in the UK.
‘However trade tensions evolve and the Brexit process unfolds, UK monetary policy will remain guided by the constancy of the inflation target.’
Pound US Dollar Outlook: Will a Disappointing US PMI Composite Weigh on USD?
Looking ahead to this afternoon, the US Dollar (USD) could rise against the Pound (GBP) following the release of the US Markit PMI composite.
If the US PMI composite rises higher than expected, it could buoy the ‘Greenback’.
However, the US Dollar could suffer some losses following the release of the US ISM non-manufacturing PMI.
If the non-manufacturing PMI slides further than forecast, it could cause the Pound US Dollar (GBP/USD) exchange rate to rise.