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US Dollar Pound Sterling (USD/GBP) Exchange Rate Edges Up despite US Business Sentiment ‘Stuck at Gloomy Levels’

US Dollar Pound (USD/GBP) Exchange Rate Rises despite US Manufacturing Sliding Further into Contraction

UPDATE: The US Dollar Pound Sterling (USD/GBP) exchange rate rose, and the pairing is currently trading at around £0.8171.

The ‘Greenback’ rallied against Sterling this afternoon despite the highly-anticipated US ISM manufacturing PMI coming in below forecast.

The sector unexpectedly fell further into contraction despite markets anticipating the sector would claw its way above the neutral 50 mark.

However, data revealed the US Markit manufacturing PMI edged up to a five month high in September.

Commenting on this afternoon’s data, Chief Business Economist at IHS Markit, Chris Williamson noted:

‘News of the PMI hitting a five-month high brings a sigh of relief, but manufacturing is not out of the woods yet. The September improvement fails to prevent US goods producers from having endured their worst quarter for a decade. Given these PMI numbers, the manufacturing recession appears to have extended into its third quarter.

‘Business sentiment about the year ahead is also stuck at gloomy levels.’

Meanwhile, Sterling was left under pressure following reports suggesting that if the UK suffered a no-deal Brexit, Dover could lose £1bn worth of trade in just a week.

Chief executive of Port of Dover, Doug Bannister stated:

‘That’s how critical it is. If there’s a no-deal Brexit, it’s not going to be OK. But people are doing all they can to ensure Britain keeps trading.’

US Dollar Pound Sterling (USD/GBP) Exchange Rate Muted as UK Manufacturing Edges Up to Four-Month High

The US Dollar Pound Sterling (USD/GBP) exchange rate remained muted and the pairing is currently trading at around £0.8145.

The UK manufacturing PMI edged up slightly to a four-month high of 48.3 in September as purchasing and input stocks rose as Brexit preparations restart.

However, the index was left below the neutral 50 mark for the fifth consecutive month, the longest sequence below this level since mid-2009.

Sterling was left under pressure as the ongoing manufacturing weakness filtered through to the labour market.

Staffing levels fell at the fastest pace since February 2013 and business optimism was left at a subdued level throughout September.

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

‘Businesses were less hopeful about the strength of the marketplace in generating manufacturing growth in the coming months as new orders continued to fall away, and business optimism remained at lower than average levels in all three sub-sectors. Export orders dwindled for the sixth successive month, and domestically, clients avoided spending and investing in this current landscape of prolonged uncertainty and political indecision.

‘Brexit combined with a slowdown in the global economy, rising trade tensions and potential oil supply difficulties in the Middle East, means we’re likely to see a chilling end to the last quarter as Halloween approaches.’

Pound (GBP) Under Pressure as Housing Market Plagued with Brexit Uncertainty

Meanwhile, the Pound remained under pressure as data revealed that the UK housing market was plagued with Brexit uncertainty in September.

Prices slumped by -0.2% in September, dragging the average property price down from £216,096 to £215,353.

Added to this, there are fears the housing market could continue to weaken in the coming months.

Commenting on this, CEO of Octane Capital, Jonathan Samuels stated:

‘It’s a miracle that the market is holding up as well as it is given the level of political turmoil. Low supply and stock levels continue to support prices while cheap mortgages and the strong jobs market are steeling buyers’ resolve.

‘The resilience of the property market looks set to be tested like never before in the final quarter of 2019.

‘To say it’s tin hat time is an understatement.’

US Dollar (USD) Muted despite Hawkish Fed Evans

Meanwhile, the US Dollar rose to a 29-month high against a handful of currencies as investors were encouraged by evidence the economy had strengthened.

This led markets to reduce expectations the Federal Reserve would cut rates in the coming months, providing the ‘Greenback’ with an upswing in support.

Added to this, Chicago Federal Reserve President, Charles Evans stated after the bank slashed rates twice this year it has reset monetary policy so it can deliver its 2% inflation goal despite risks to the economic outlook.

With unemployment close to 50-year lows, Evans has stated that the bank could raise rates to 3% this year and still achieve its 2% inflation goal.

Speaking in Frankfurt Evans stated:

‘I concluded that the situation called for us to cut policy rates 50 to 75 basis points below the long-run neutral rate and then leave policy on hold for a time.

‘I think this more accommodative stance is needed to support a roughly similar growth outlook to what I had anticipated before and, importantly, to support moving inflation up with greater assurance to achieve our symmetric 2% goal within a reasonable time.’

However, this hawkish statement from Evans did little to buoy the US Dollar against Sterling and the pairing was left muted as some Fed policymakers believe that further cuts will be needed amidst increased global uncertainty.

US Dollar Pound Outlook: Will US Manufacturing Return to Growth?

Looking ahead to this afternoon, the US Dollar (USD) is likely to rise against Sterling (GBP) following the release of US manufacturing data.

If ISM’s manufacturing PMI reveals the sector has returned to growth in September it is likely the Dollar will receive an upswing of support.

Meanwhile, on Wednesday the Pound could extend losses following the release of September’s construction PMI data.

If the construction sector slides further than expected into contraction, it is likely the US Dollar Pound (USD/GBP) exchange rate will rise.