ExchangeRates.org.uk - The US Dollar (USD) saw some dramatic swings on Monday amid growing concerns over the health of the US economy and the subsequent rout in global markets. There were various factors driving this rout at the start of the week, including tensions in the Middle East and signs of weakness in the Chinese economy. However, the most notable factor appeared to be fears of a US recession.
Kyle Rodda, senior financial market analyst at capital.com, comments: ‘The markets are in meltdown and it’s a sea of red across the world. There are a lot of moving parts, but this is the essence of things: a looming slowdown in the US economy has cast doubts about global economic growth.’
Concerns over the state of the US economy have mounted in the wake of Friday’s abysmal US payroll figures. The data has stoked fears that the Federal Reserve may have held off too long before cutting interest rates. As a result, markets now overwhelming expect the US central bank to deliver a 50bps rate cut following its next policy meeting in September. The focus now shifts to the latest ISM services PMI as a rebound in the US service sector last month may help to ease US economic jitters and arrest the market selloff.
Pound (GBP) Draws Support from Uptick in UK Service Sector Growth
The Pound (GBP) initially plummeted on Monday, with the increasingly risk-sensitive currency having gotten caught up in the selloff which swept through global markets during the Asian trading session. Sterling subsequently managed to claw back some of its losses at the start of the European trading session with the release of the UK’s latest services PMI. July’s finalised index reported a slightly stronger-than-expected expansion in the UK’s vital services sector. This buoyed GBP sentiment as it suggests the UK economy got off to a positive start in the third quarter of 2024.
Joe Hayes, Principal Economist at S&P Global Market Intelligence, commented: ‘With the general election period coming to an end at the start of July, survey data for last month showed the UK service sector enjoyed a modest rebound after a fairly subdued end to Q2. ‘July's accelerated expansion in sales activity crucially suggests business and consumer confidence has improved, and albeit only one month into the second half of 2024, the latest survey results bode well for a reasonable GDP growth print in Q3.’
However, the rebound in the Pound was ultimately cut short as the market rout caused GBP investor to more aggressively price in future interest rate cuts from the Bank of England (BoE). Markets are now fully pricing in two more 25bps rate cuts from the BoE before the end of 2024.
GBP/USD Exchange Rate Forecast: Skittish Mood to Weigh on Sterling?
Looking ahead, the Pound US Dollar exchange rate could face headwinds as the week continues, assuming the market selloff persists. A continue rout in markets is likely to see investors favour the US Dollar over the Pound and could see the pairing slide to its worst levels in over a month.
This content was originally published on ExchangeRates.org.uk
