Sterling is currently at $1.293 against the US Dollar, down 0.1 per cent from its opening levels this morning, but still up from Thursday’s low of $1.285.
According to data released by IHS Markit, the UK’s manufacturing PMI jumped from 55.3 to 56.9 in August – easily outpacing initial forecasts that it would slide to 55 – which was only slightly behind the three-year high struck in April.
The report showed that activity across the sector accelerated last month, with strong employment, output and orders also helping to bolster business confidence to one of its highest levels in over a year.
Duncan Brock, at the Chartered Institute of Procurement & Supply said: “Market forces continued to be supportive of the sector this month, as purchasing activity was strong, more jobs created and new orders rose across all three sectors, for companies large and small.
“Buoyed up by a rebound in domestic demand, the sector’s overall performance was one of the strongest since 2014.”
However markets remained cautious around sterling this morning following reports yesterday that Brexit negotiations have stalled, with EU chief negotiator Michel Barnier saying that “no decisive progress” had been made in the third round of talks this week.
A major barrier in progress appears to be over negotiations for the UK’s divorce bill with the EU, with Barnier saying that the UK did not feel “legally obliged to honour its obligations”.
Meanwhile the US dollar was forced to cede most of its gains yesterday as softer than expected PCE inflation figures weighed on market sentiment.
With core inflation falling to a 17-month low in July investors have become increasingly concerned that the Federal Reserve may shelve its plans to raise interest rates for a third time this year.
The CME Group’s FedWatch tool currently puts the odds of a December rate hike at just 36 per cent; well below the 80 per cent seen before June’s hike.
Looking ahead the GBP/USD exchange rate may tumble later today as the US publishes its latest employment data.
Investors will be focused on the Non-Farm Payrolls data this afternoon as, while investors previously predicted that the private sector will have added fewer jobs in August, a surprise lift in the ADP employment figures earlier in the week has prompted speculation that payrolls may also beat expectations.
Meanwhile the Pound’s fate at the start of next week’s session is likely to be close tied to the release of the UK’s latest services PMI on Tuesday, with economists predicting that activity in Britain’s all-important service sector will have slowed last month.