Pound to Dollar Rate Extends Gains on Mixed US Data

The pound advanced towards a two-week high against the dollar on Wednesday, benefitting from a risk-off mood in markets that triggered a drop in demand for the safe-haven US currency. A light UK economic calendar means the pound’s fortunes are largely being influenced by other currencies this week. However, two economic indicators did hit the headlines in the UK on Wednesday morning: the most notable being the Markit Manufacturing Purchasing Managers’ Index (PMI).

British factory output grew in August, but it did so at the weakest rate for six months as supply chain constraints hampered manufacturers’ recovery from the Covid-19 pandemic. The IHS Markit/CIPS UK Manufacturing PMI dropped to 60.3 in August from 60.4 the previous month.

Also on investors’ radar was the Nationwide House Price Index, which showed UK house prices jumped by almost £5,000 last month as the property market remained robust following the partial end to the government’s stamp duty holiday. According to the Nationwide building society, the price of the average home increased by £4,628 to £248,857 in August, a monthly rise of 2.1% – the second highest in 15 years.

Robert Gardner, Nationwide’s chief economist, said: “The bounce back in August is surprising because it seemed more likely that the tapering of stamp duty relief in England at the end of June would take some of the heat out of the market.”

US manufacturing activity unexpectedly picks up

Last week’s Jackson Hole economic symposium, during which Federal Reserve Chair Jerome Powell struck a more dovish tone on the outlook for monetary policy than expected, led to investors taking flight from the dollar. The US currency’s woes extended on Wednesday as investors continued to sell the safe-haven dollar – and there was mixed news on the data front.

US manufacturing activity – which accounts for 11.9% of the US economy – unexpectedly gathered pace last month amid robust order growth, but a gauge of factory employment declined to a nine-month low. The Institute for Supply Management (ISM) survey continued to highlight ongoing raw materials supply issues – a scenario that has been exacerbated by disruptions caused by the latest wave of global Covid-19 infections. The ISM’s index of national factory activity edged up to 59.9 in August from 59.5 in July – a reading above 50 indicates expansion in the sector. Economists had expected the index would fall to 58.6.

The ADP National Employment Report, which was also released on Wednesday, revealed that private payrolls increased by 374,000 jobs in August after rising 326,000 in July. This was out of step with the consensus that private payrolls would increase by 613,000 jobs.

Looking ahead

A raft of data is slated for release from the US economy today, including Initial Jobless Claims and Goods and Services Trade Balance. But it’s Friday’s Nonfarm Payrolls report that is in the sharpest focus for investors, with economists predicting payrolls increased by 728,000 jobs last month after rising 943,000 in July.

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