The pound is struggling in early trade on Thursday after closing below the key psychological level of US$1.30 for the second time this week. The pound US dollar exchange rate closed Wednesday’s session 0.4% lower at US$1.2996, as impressive US economic data overshadowed upbeat UK numbers. Today, concerns over post Brexit UK-EU relations are keeping the pound under pressure.
GBP/USD: Pound declined despite service sector activity hitting a 16-month high
The pound declined in the previous session despite service sector activity hitting a 16-month high in January. The service sector, a sector which includes banking, insurance, restaurants and hotels, accounts for around 80% of economic activity in the UK. According to the latest data from IHS/Markit/Cips, companies in the service sector recorded the strongest upturn in activity in a year and a half.
Fading political uncertainty since the decisive win by the Conservatives in the December elections has bolstered business investment and consumer spending across the country. Staff hiring also increased.
The strong service sector reading completed a hat-trick of impressive PMI prints across the week, with manufacturing and construction also beating analysts’ forecasts.
There is little in the way of high impacting UK data due for release today, leaving pound investors short of fresh catalysts to drive sterling. With the void on the UK economic calendar investors are turning their attention to the post transition UK – EU economic relationship.
US Dollar
The dollar stormed higher in the previous session as President Trump survived his impeachment trial and following several interesting data releases, which painted a broadly positive picture for US economy. The closely watched ISM non-manufacturing index increased to 55.5 in January, up from 54.9 in December. Both business activity and news orders revealed a notable acceleration. This comes following a strong ISM manufacturing reading earlier in the week.
The upbeat data indicates that the ebbing of tensions between US – China has reduced uncertainty, boosting confidence whilst providing the potential for stronger growth in 2020.
Other data release yesterday included impressive private payroll data, strong mortgage figures. The only miss came from the US trade balance which widened more than forecast.
The data suggests that the economic situation in the US is good. However, this doesn’t account for any slowdown or weakness that could be brought on by coronavirus.
With news of a coronavirus vaccine breakthrough, fears surrounding the deadly virus have eased. Investors will continue to monitor the situation. Mid-tier US data could also attract investor attention ahead of the non-farm payroll data release on Friday.
