The pound is moving southwards versus the US dollar in early trade on Wednesday amid ongoing no trade deal Brexit fears and as investors look ahead to significant macro-economic data releases from both the UK and the US. The pound US dollar exchange rate closed Tuesday’s session 0.4% higher and comfortably back over the key US$1.30 level. This was a solid bounce from Monday’s six week low.
Pound
Investors are looking towards the UK service sector pmi reading. This is the third pmi reading this week, and arguably the most important given that the UK service sectors accounts for around 80% of economic activity in the economy. Analysts are expecting the IHS/Markit data to show that the UK service sector index reached 52.9 in January. A figure of 50 separates expansion from contraction.
A strong print will make a hat-trick of impressive PMI data reads across the week. The manufacturing pmi showed that the sector stagnated in January, an improvement after months of contractions. Yesterday the construction pmi revealed that the downturn in the construction sector appeared to be easing. Whilst the sector contracted in January it did so at a much slower pace.
Recent data has shown that business and consumer confidence has increased on the improved political landscape after the Conservative achieved a clear win in the December election. Another solid print today could boost UK economic growth expectations and lift the pound.
Dollar
The dollar traded broadly higher versus its major peers in the previous session, just not versus the pound. The financial world temporarily set aside coronavirus concerns and focused on the health of the US economy.
On the data front, upbeat US factory order added to the favourable mood towards the greenback. The Commerce Department I that factory orders increased 1.8%, significantly higher than the 1.2% forecast and well above November’s -1.2% decline.
The bigger than expected rebound in factory orders comes after ISM manufacturing data also impressed earlier in the week.
Data is expected to remain very much in focus today and heading toward the non-farm payroll at the end of the week. Today investors will be watching the ISM non-manufacturing pmi and the ADP private payroll numbers. These prints are particularly important because they are considered strong lead indicators for the non-farm payroll, the most important data release of the month.