ExchangeRates.org.uk - The Pound to Dollar (GBP/USD) exchange rate retreated to test support below 1.2700 on Monday but found solid support on dips and rebounded to 1.2780 after weaker-than-expected US business confidence data. GBP/USD will gain fresh traction if it can break above the 1.2800 level to 10-week highs.
The US PMI manufacturing index was revised to 51.3 for the final reading from the flash reading of 50.9. Although the rate of increase in output prices slowed to a 5-month low, there was stronger upward pressure on costs. According to Andrew Harker, Economics Director at S&P Global Market Intelligence; “Cost pressures continued to build with inflation on that front the strongest in just over a year. Although output prices rose at a slower pace in May, this is unlikely to be sustainable should cost burdens ramp up further in the months ahead.”
The ISM manufacturing index edged lower to 48.7 for May from 49.2 the previous month and below consensus forecasts of 49.8. The prices index retreated to 57.0 from 60.9 and below expectations of 60.0. There was a slide in new orders growth to 45.4, although there was a small increase in employment for the month. The weaker-than-expected release sapped support for the dollar.
Jobs-related evidence will be very important late this week. ING commented; “If recent weeks have been about US price data, this week is all about the second part of the Fed's dual mandate – maximum employment.” It added; “Tomorrow sees the release of JOLTS job opening data. This goes to the heart of the Fed's focus of balance returning to the labour market. Lower job openings will reflect a better balance between demand and supply and will have implications for how the Fed thinks both about labour demand and wage price pressures. According to the bank; “The main event this week will, however, be Friday's US job report for May. Our team is looking for a softer figure at +150k, which if seen should prove a modest negative for the dollar.”
Brian Jacobsen, chief economist at Annex Wealth Management, commented; "If the unemployment rate does tick up, then it could be a sign that the US labour market is not as tight as some think, which could lead to a further recalibration in rate expectations and even some dollar weakness as we move towards the weekend.” MUFG added; “For the Fed to more actively consider cutting rates, it will need to see further evidence of slowing inflation in the coming months and/or a more marked softening in the US labour market. The latest nonfarm payrolls report for May will be the main economic data release in the week ahead and will be important in determining whether the recent US dollar sell-off extends further this month or proves to be only a temporary correction lower.” There were only limited UK influences, especially with no comments from the Bank of England (BoE).
There was a slight downward revision to the UK PMI manufacturing index for May at 51.2 from the flash reading of 51.3. Scotiabank commented; “The result was still the strongest in nearly two years, however, and does not detract from the outlook for a slow improvement in the overall UK economic outlook.” RBC Capital Markets commented; “The BoE has now cancelled all non-essential public statements between now and the election, likely precluding a June 20 easing. Reflecting this, the market went from pricing 55% of a June cut on May 20 to just 8% of that rate cut today. It isn’t quite impossible, but it isn’t very likely.” It added; “Instead, the market is now straddling the August 1 and September 19 meetings, unsure of which is more likely.
Our sympathies lie more toward August 1, especially if the ECB rate cut and market response proceed smoothly.”
This content was originally published on ExchangeRates.org.uk
