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Pound US Dollar (GBP/USD) Exchange Rate Forecast: UK Economy to Stagnate Following Shock Contraction in Services PMI?

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GBP/USD Exchange Rate Climbs despite Disappointing UK Services PMI

The Pound US Dollar (GBP/USD) exchange rate continued to push higher this morning, with broad weakness in USD helping to offset a gloomy UK services PMI.

At the time of writing the GBP/USD exchange rate is up 0.4% so far this morning, having fallen off its best levels following the release of the UK’s PMI figures.

US Dollar (USD) Undermined by Boost in Risk Appetite

The US Dollar (USD) has been left on the back foot at the start of today’s session, falling against the majority of its peers as demand for the safe-haven currency is dented by improving market risk appetite.

This comes amid reports that the US and China are close to finalising a trade deal, with the two sides apparently having resolved most of their issues.

This coincided with a welcome pick-up in China’s service PMI, which helped to further boost market risk appetite.

Pound’s (GBP) Gains Trimmed by Weak Services PMI

Meanwhile the Pound (GBP) has found its gains against the US Dollar (USD) capped this morning following the release of the UK’s latest Services PMI.

According to data published by IHS Markit, growth in the UK’s all important service sector unexpectedly contracted last month, with the latest index dropping from 51.3 to just 48.9, the sectors worst performance since July 2016.

The disappointing result prompted alarm bells to ring in the UK, with economists warning this points to the UK economy having stagnated in the first quarter.

Chris Williamson, Chief Business Economist at IHS Markit, said:

‘A drop in service sector activity indicates that UK GDP contracted in March, with the economy stalling over the first quarter as a whole and at risk of sliding into a deepening downturn in coming months.’

GBP/USD Exchange Rate Forecast: Will a Brexit Breakthrough Turbo Charge Sterling?

Looking ahead, Brexit is likely to quickly return to being the dominant force dictating movement in the Pound US Dollar (GBP/USD) exchange rate.

This is likely to revolve around the upcoming talks between Theresa May and Jeremy Corbyn, in which it’s hoped that the two will be able to coming up with a workable Brexit solution to help break the deadlock in Parliament.

Meanwhile the focus for USD investors will be this afternoon’s ISM non-manufacturing PMI, with the US Dollar potentially clawing back some ground if the US service sector remained robust in March.