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Rise in US Manufacturing PMI Buoys the Pound US Dollar (GBP/USD) Exchange Rate

US Dollar Currency Forecast

Pound Sterling US Dollar (GBP/USD) Exchange Rate Jumps on Record Rise in US PMI

UPDATE: The Pound Sterling US Dollar (GBP/USD) exchange rate edged 0.7% higher on Wednesday afternoon. This left the pairing trading at around $1.2467.

Risk appetite improved this afternoon, which sent traders flocking away from the safe-haven US Dollar.

Data revealed the US saw a record rise in the country’s manufacturing PMI thanks to the easing of coronavirus restrictions.

June’s final index posted at 49.8, up from May’s 39.8, and higher than the flash reading of 49.6.

Commenting on this, Chris Williamson, Chief Business Economist at IHS Markit said:

‘US manufacturers have reported a marked turnaround in business conditions through the second quarter, with collapsing production and demand in April at the height of the COVID-19 lockdown turning rapidly to stabilisation by June. The PMI posted a record 10-point rise in June amid unprecedented gains in the survey’s output, employment and order book gauges.

‘The record rise in the New Orders Index, coupled with low inventory holdings, bodes well for a further improvement in production momentum in July. A record upturn in business sentiment about the year ahead likewise hints that business spending and employment will start to revive.

‘However, while the PMI currently points to a strong v-shaped recovery, concerns have risen that momentum could be lost if rising numbers of virus infections lead to renewed restrictions and cause demand to weaken again.’

Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted as Covid-19 Cases Surge in USA

The Pound Sterling US Dollar (GBP/USD) exchange rate remained muted on Wednesday morning. This left the pairing trading at around $1.2396.

Traders remained cautious today ahead of key data from the United States and Eurozone.

The US Dollar edged higher overnight, before sliding ahead of this afternoon’s US manufacturing PMI data which is largely expected to rebound.

In a note to clients, ING strategists wrote:

‘Even if surprising on the upside, markets are likely to take the forward-looking indicator with caution given the rising Covid-19 cases in the US.’

Meanwhile, investors have been expecting a surge in coronavirus infections in the US will not prevent a broader global economic recovery.

Although, Covid-19 cases jumped by more than 47,000 yesterday, the largest one-day spike since the start of the pandemic. Added to this, the government’s top infectious disease expert said this number could soon double.

Sterling (GBP) Flat as UK Manufacturing Optimism Hits Two-Year High

The Pound remained flat this morning after UK manufacturing PMI data revealed the sector stabilised in June.

After a severe downturn due to the coronavirus, activity picked up from May’s 40.7 to 50.1 in June.

The data revealed that both output and business optimism increased, although employment fell for the fifth month in a row.

Commenting on this morning’s data, Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply noted:

‘June’s data shows the sector has dragged itself up from a survey-record low just two months ago into a position of no-change, as optimism rises to its highest levels for almost two years amongst manufacturers.

‘The sector may be springing back into action after lockdown easing, but worse results may be on their way for companies as government support falls away and businesses are left with decisions to make on whether they can weather any continuing storms. Employment levels fell for the fifth month in a row and are still plummeting across all three sub-sectors. As companies nervously look for signs of real growth, shedding costs wherever they can in the meantime, these actions may cause damage that will take some time to fix.’

This comes just a day after data revealed the UK economy shrank by the most since 1979 during Q1 2020.

The data that included just the first few days of lockdown saw the economy shrink by -2.2%, below forecast.

Added to this, the Bank of England (BoE) has warned the economy may shrink by -20%. According to currency strategist at MUFG in London, Lee Hardman:

‘The Pound is on track to be the worst-performing G10 currency this month for the second consecutive month. The weakness we are seeing now is a trend that has been in place for some time.’

Pound US Dollar Outlook: Fed Minutes in Focus

Looking ahead, the US Dollar (USD) could be offered some support this afternoon against the Pound (GBP) following the release of PMI data.

If the Federal Reserve’s preferred measure of PMI, the ISM manufacturing PMI edges closer to 50, it will boost the ‘Greenback’.

Traders will also be focusing on this evening’s release of the Federal Reserve’s monetary policy meeting minutes.

The FOMC minutes could reveal any areas policymakers believe could be changed in the future, such as negative interest rates. If the minutes spook markets, it will weigh on risk appetite and send the Pound US Dollar (GBP/USD) exchange rate lower.