HomeContributorsFundamental AnalysisPound Stumbles to 4-Month Low as Manufacturing PMI Slips

Pound Stumbles to 4-Month Low as Manufacturing PMI Slips

The US dollar has steamrolled the British pound in the Tuesday session. In North American trade, the pair is trading at 1.3599, down 1.18% on the day. On the release front, British Manufacturing PMI fell to 53.9, well below the estimate of 54.8 points. Consumer lending dropped to GBP 4.2 billion, missing the estimate of GBP 4.9 billion. In the US, the ISM Manufacturing PMI also disappointed, dropping to 57.3 points. This was short of the forecast of 58.4 points. On Wednesday, Britain releases Construction PMI. Market attention will shift to US employment indicators in the latter part of the week, starting with ADP Nonfarm Employment Change. As well, the Federal Reserve will release a rate statement.

The pound continues to struggle as the currency has fallen to its lowest level since the first week in January. The pound plunged on Tuesday, after a weak reading from Manufacturing PMI. The indicator fell to 53.9, marking a fifth consecutive drop. This was its lowest level since November 2016. Investors have not taken kindly to soft numbers, as the pound also recorded sharp losses on Friday, after the release of Preliminary GDP. This first estimate of GDP posted a negligible gain of 0.1%, missing the estimate of 0.3%. The poor performance of the economy in the first quarter has dampened expectations that the BoE will raise rates at next week’s rate meeting, with the odds of a hike plunging to 20%, compared to 90% at the beginning of April. Most analysts expect the BoE to delay a rate hike until the second half of the year, with August or November being the most likely months for a rate hike. This sentiment sent the pound lower on Friday and the currency declined 1.6% last week. Currently, GDP/USD is trading at its lowest level since the end of February.

All eyes will be on the Federal Reserve on Wednesday when it concludes a 2-day policy meeting. The markets are expecting the Fed to maintain the benchmark rate at a range between 1.50% and 1.75%, and analysts will be keeping a close eye on the rate statement – a hawkish statement could propel the US dollar to higher levels. There is growing sentiment that the Federal Reserve will raise interest rates four times this year, although Fed policymakers have not changed their forecast of three increases in 2018. One scenario envisions the Fed raising rates once each quarter until the economy shows signs of slowing down. If inflation continues to move higher and economic conditions remain strong, the dollar should continue to shine against its major rivals.

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