ExchangeRates.org.uk - At the time of writing GBP/USD was trading at around $1.3141 at the time of writing, virtually unchanged from Tuesday’s opening levels. The US Dollar (USD) was largely rangebound on Tuesday after the latest ISM manufacturing PMI missed forecasts. The index registered a reading of 47.2 for August, slightly up from the previous nine-month low of 46.8 but falling short of market expectations of 47.5. With a score below 50 indicating contraction, the data marked the twenty-first month of decline in the sector over the past 22 months.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted: ‘A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward looking indicators suggest this drag could intensify in the coming months.’
Analysts highlighted that the continued weakness in manufacturing underscores the impact of the Federal Reserve’s ongoing restrictive monetary policy. This could heighten expectations of a potential interest rate cut by the Fed later this month. However, the US Dollar's safe-haven appeal provided some support amid a cautious market environment.
Pound (GBP) Stymied by Cautious Trade
The Pound (GBP) stumbled on Tuesday as a gloomy market sentiment and an absence of UK economic data weighed on investor confidence. With a light economic calendar, the Pound found itself vulnerable to losses against safer currencies, although it managed to hold steady against riskier counterparts. Despite thin trading conditions, the Pound received some support from diminishing expectations of aggressive rate cuts by the Bank of England (BoE) in the near term. As markets brace for a more measured approach to policy easing from the BoE compared to other major central banks, the currency's downside was somewhat mitigated.
Enrique Díaz-Alvarez, Chief Economist at Ebury, noted: ‘The Bank of England is clearly in easing mode, although the resilience of the UK economy suggests that the pace of MPC rate cuts will be a gradual one. Markets are assigning no more than a one-in-four chance of another cut from the BoE in September, though this may change should upcoming data on the labour market, GDP and inflation surprise expectations.’
However, in the absence of significant domestic catalysts and amid growing market anxiety, the Pound struggled to make substantial gains.
GBP/USD Exchange Rate Forecast: US Employment Data to Weaken USD?
Looking ahead, the UK's final services PMI is set to be released on Wednesday morning. If the data confirms that the key British sector expanded for the tenth consecutive month, it could boost GBP exchange rates during Wednesday’s trading session. Meanwhile, the upcoming US jobs data may introduce significant market volatility. The JOLTs job openings report is expected to show a slight decline, with economists predicting 8.1 million job openings in the US for July. If the data meets expectations, it could stoke concerns over a weakening US labour market, potentially weighing on USD. Additionally, the release of US factory orders data could influence USD performance. A rebound in new orders for US manufactured goods might attract investor interest in the 'greenback,' signaling stronger consumer activity in the US economy.
This content was originally published on ExchangeRates.org.uk
