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Pound to US Dollar Exchange Rate Gains Limited as Outlook Awaits UK PMIs

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Pound to US Dollar Exchange Rate Recovers Most of Last Week’s Losses

A combination of lingering Bank of England (BoE) interest rate cut bets and some US Dollar (USD) resilience have limited the Pound Sterling to US Dollar (GBP/USD) exchange rate’s advances this week so far. Investors currently await major upcoming data.

After ultimately falling at the end of last week and dropping from 1.3065 to 1.3015 on the week overall, GBP/USD has been more positive this week.

GBP/USD advanced on UK job market data yesterday and has sustained most of its rebound. GBP/USD is currently trending more closely below last week’s opening levels, in the region of 1.3041.

Sterling (GBP) could more easily sustain further gains, if Friday’s anticipated UK PMI data beats forecasts. This would cause BoE rate cut bets to fall.

Pound (GBP) Exchange Rates Steadies Higher as Bank of England (BoE) Bets Lighten

For most of the past week, bets of a sudden January interest rate cut from the Bank of England (BoE) had been rising. This was due to poor UK data, which worsened concerns about the impact of Brexit uncertainty on Britain’s economy.

However, yesterday’s job market report showed a greater number of new jobs than expected. It also showed that wages including bonuses had risen more than forecast.

This stronger data doused Bank of England interest rate cut bets slightly, giving the Pound a solid boost yesterday.

The Pound is holding its gains today, as expectations of a BoE rate cut next week are lower.

However according to Shanti Keleman, Investment Director at Brown Shipley, there is still a solid chance of a rate cut next week. She said that the bank may opt to cut rates now, to offset the risk of further weakness in growth later down the line:

‘If you cut interest rates it takes time for that to feed through into the economy in terms of influencing decisions on lending or future pricing.’

US Dollar (USD) Exchange Rate Outlook Could be lower as Global Growth Recovers

The US Dollar outlook may be weakening, due to further signs of recovery in the global economy.

Concerns over a coronavirus spreading from central China briefly weighed on the US Dollar yesterday as it caused fresh trade concerns. However, the US Dollar’s continued weakness is more due to the global economic outlook.

The US Dollar is a safe haven currency. Over the past couple years slow growth and geopolitical jitters have left the US Dollar highly appealing – but these uncertainties may finally be softening.

More economists are seeing signs of the global economy improving after last year. This is adding to expectation that the safe US Dollar will fall as investors begin to take more risks again.

According to Mark McCormick, Global Head of Foreign Exchange at TD Securities:

‘The global economy looks like it’s healing,

The reduction of uncertainty will likely allow investors to take risks … they didn’t want to take before.’

Pound to US Dollar (GBP/USD) Exchange Rate Investors Awaits UK PMI Results

With the US Dollar outlook becoming weaker due to global growth hopes, the Pound to US Dollar (GBP/USD) exchange rate’s movement has been driven more by the Pound this week so far.

This is likely to continue towards the end of the week, with more notable UK data due for publication.

Tomorrow’s economic calendar will be fairly quiet aside from US Kansas Fed manufacturing data. Friday’s data will be potentially highly influential though.

Markit’s January PMI projections will be published on Friday. They are expected to have shown modest improvements, after a disappointing December.

If the data fall short of expectations, it could worsen concerns that Britain’s economic performance remains subdued in the New Year. This would cause Bank of England (BoE) interest rate cut bets to rise and the Pound to fall.

On the other hand though, stronger than expected UK PMIs would further soften BoE rate cut bets and make it easier for the Pound to US Dollar (GBP/USD) exchange rate outlook to recover further before markets close for the week.