The British Pound (GBP) extended its losses against the US Dollar (USD) for a fourth consecutive day. It has now decisively dropped under the key 1.3450 line in the sand. This downward trend comes as strong economic indicators from the United States bolster the Dollar’s performance, with market participants closely monitoring the upcoming Jackson Hole symposium for further insights into monetary policy.
In international trading ranges over the past few sessions, the GBP/USD currency pair has seen dramatic and high profile volatility. An exception to this was the British Pound, which traded up against the Japanese Yen, illustrating a split performance between currency pairs. Analysts cite weak manufacturing figures and climbing US jobless claims as the biggest drivers of GBP’s recent downturn. Financialization over-leveraging—these factors have absolutely contributed to dollar strength.
The Services Purchasing Managers’ Index (PMI) for August revealed a reading of 55.4, easing modestly from July’s 55.7 but still surpassing market expectations of 54.2. This means that the services sector is still growing, but just more slowly. Positive sentiment regarding this emerging sector has helped to strengthen expectations about the strength of the Dollar.
The strength behind the recent Manufacturing PMI was in full retreat, plunging to 47.3 for August. This represents a drop of 7.5 points from July’s 48.0. It was below the consensus predictions, which had called for a 48.3 reading. The decline in manufacturing activity has understandably led to alarm bells ringing regarding the overall economic health, in stark relief to the strong services data.
The S&P Global Composite PMI preliminary reading for August increased, rising to 53.0 from July’s 51.5. Even with headwinds in the manufacturing sector, the overall economic activity is very strong. This same resilience goes a long way to bolstering the Dollar’s strength against every major currency.
Beyond these PMIs, we saw initial jobless claims data released this week jump to 235,000. This figure exceeded forecasts of 225,000 and was up from the previous week’s 224,000 claims. Surging jobless claims are paving the way for a new era in labor market dynamics. This trend is driving fears among investors that economic foundation is cracking. That figure represents an eight-week high. That would imply the labor market is starting to come under strain, likely weighed on consumer spending in the months ahead.
The conflicting news coming out of the US economy is creating a tricky environment for global traders. While strong service sector performance provides some optimism, the weakening manufacturing index and rising jobless claims highlight potential vulnerabilities in economic growth. Market participants are looking ahead to the Jackson Hole symposium later this month. They’re doing so while watching with rapt attention as hopeful investors look for signals from Federal Reserve officials on future interest rate policy.