Pound to Dollar Rate Slips to 1.40

The pound to dollar rate plummeted towards the 1.40 benchmark yesterday afternoon, as the US currency grew in strength. The move lower came despite upbeat data from the UK economy earlier in the day and reflected investor concerns that the Indian variant of the coronavirus will delay lockdown restrictions being fully eased later this month.

The UK services sector posted its largest increase in activity in 24 years in May after pubs and restaurants resumed serving customers indoors following the latest lockdown. The data from a closely watched business survey adds to optimism that Britain is experiencing a rapid initial economic rebound as lockdown rules relax. IHS Markit/CIPS Purchasing Managers’ (PMI) Index jumped to 62.9 in May from 61 the previous month – its highest level since May 1997 and above economists forecast of 61.8. A reading above 50 demonstrates expansion.

IHS Markit’s economics director, Tim Moore, said: “The latest survey results set the scene for an eye-popping rate of UK GDP growth in the second quarter of 2021, led by the reopening of customer-facing parts of the economy after winter lockdowns,”

The composite PMI – which includes recently released manufacturing data – leapt to 62.9 in May, up from a reading of 60.7 in April. This marked the highest level since the index began in January 1998.

By this morning, the pound vs dollar rate had slipped to 1.40 for the first time since 17 May.

Dollar Ticks Higher Ahead of Payrolls Data

The dollar ticked higher yesterday ahead of a raft of domestic data that could influence the outcome of central bank meetings later this month. The US private payrolls figure was the latest number to offer clues on the state of the economy and a possible indication of the highly anticipated Nonfarm Payrolls report due today.

Private sector employment rose by 978,000 jobs from April to May according to the latest ADP National Employment Report – a measure of the change in total nonfarm private employment each month on a seasonally adjusted basis. The reading adds weight to economists’ expectations that tomorrow’s influential Nonfarm Payrolls report will reveal a surge in the number of new jobs created during the previous month in all non-agricultural business.

The Institute for Supply Management (ISM) reported that services firms in the US grew at a record pace in May. According to the largest supply management association in the world, economic activity in the services sector grew for the 12th month in a row. The ISM Service PMI rocketed to a new record high of 64, up from 62.7 in April.

Looking Ahead

The UK Markit Construction PMI for May is scheduled for release this morning.

A busy day in the US data calendar sees Factory Orders and a slew of employment data hit the headlines, including the influential Nonfarm Payrolls report for May.

Get in touch to discuss these factors in further detail ahead of your currency exchange.

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