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US Dollar Vs Pound Nears 2-Week High, as UK Factories Shrink

Market CommentaryUS Dollar Vs Pound Nears 2-Week High, as UK Factories Shrink
US Dollar Vs Pound Nears 2-Week High, as UK Factories Shrink
US Dollar Vs Pound.

The US dollar vs pound interbank exchange rate stands at 0.7918 at the time of writing. This is the greenback's strongest versus sterling since June 19th, or close to two weeks.

By contrast, back on June 25th, the US dollar was as low as 0.7831 versus the pound. So it's since risen by more than +0.75 cents, or by +1.11%.

This could be beneficial for you, if you're a Brit selling property abroad in the USA to repatriate the funds to the UK, or a US business owner importing British products.

This is because, when you transfer money to the UK, you might now get a higher pound sterling total in your British bank account, compared to in the last two weeks.

In turn, this would make it more profitable for you to repatriate the funds from your home sale, or cut your international payments costs for your business.

To stay up-to-date with the US dollar vs pound interbank exchange rate, visit Pure FX's Rates & Tools page, and select 'USD to 'GBP'. You'll see today's rate and for the last week.

Also, to check what's influencing the value of the mighty buck against the pound sterling, visit our USD to GBP Exchange Rate Updates page. There, click on the newest article.

A first reason why the US dollar to pound interbank exchange rate has neared this two-week high is because the UK's manufacturing sector contracted in June, said respected data on Monday.

A second factor why the USD has gained in value versus the GBP is because US President Donald Trump has announced a truce in America's and China's trade war.

Let's look more closely at these factors that have lifted the US dollar versus the pound. You might find this useful, to help you decide when to transfer money to the UK this year.

US Dollar Vs Pound Rises, as UK Manufacturing Output Shrinks

As I mention, a first partial explanation why the US dollar has neared this two-week high versus the pound is because the UK's manufacturing sector shrank in June, said trusted data yesterday.

According to economics watchdog IHS Markit on Monday, the UK's manufacturing PMI (Purchasing Manager's Index), a respected measure of British factory performance, fell to 48.0 last month.

This 48.0 is below the 50.0 figure that separates economic growth from contraction. It's also below financial markets' forecasts for 49.2, May's figure of 49.4, and the lowest figure since 2013.

In particular, UK manufacturing output shrank in June, because factories continued to produce less, following the large stockpiling build-up earlier in 2019.

This was to protect against the possible effects of a 'No Deal' Brexit, ahead of the UK's original deadline to exit the EU of March 31st. However, since then, the UK's Brexit deadline has been extended to October 31st.

As a result of the stockpiling efforts earlier this year, UK manufacturers now have far more finished products in their warehouses than they ordinarily would.

So they now need to produce fewer goods, to meet the demand of their customers. This is dragging down the UK's manufacturing production, following the extension of the UK's Brexit deadline up to Halloween.

In addition, it's worth noting that UK factory output shrank in June, because global demand for manufactured goods is slowing.

For example, Germany’s manufacturing sector is shrinking rapidly at present, while the wider Eurozone’s manufacturing PMI stands at just 47.6. This points to falling factory activity in Europe too.

According to IHS Markit, British factory owners are now their third-least optimistic about the outlook since records began, while job losses in UK manufacturing shrank for the third consecutive month in June.

Rob Dobson, Director at IHS Markit, said about these statistics that: "Demand from the domestic market weakened, while the additional constraint of slower global economic growth meant new export business fell at one of the fastest rates since late-2014."

Meanwhile, Thomas Pugh, UK Economist with Capital Economics, added that: "the global manufacturing sector has continued to deteriorate." So this has contributed to weaken sterling.

USD Gains Versus GBP, as Trump Calls Trade Truce with China

In addition, another partial explanation why the US dollar vs pound interbank exchange rate has neared this two-week high is because US President Donald Trump and China's President Xi Jinping have called a temporary truce in their trade dispute.

This follows bi-lateral talks between the leaders of the world's two largest economies, at the G20 in Osaka, Japan last weekend, reports Business Insider.

As a result of the talks, Mr. Trump agreed to indefinitely postpone adding another $300 billion in tariffs to China's imports to the USA.

Also, Mr. Trump agreed to lift restrictions on the sale of products by Huawei, China's largest technology manufacturer, in the United States. Meanwhile, Mr. Xi pledged to buy an unstated quantity of American farm goods.

Following this announcement, Mr. Trump tweeted that the USA's and China's trade talks are "right back on track".

In addition, Richard Clarida, Reserve Chair of the Federal Reserve, America's central bank, said that the trade truce is a "positive development", while adding that the USA's economy is currently in "a good place", according to financial news source Bloomberg.

This has helped to lift the US dollar, first because the USA and China are the world's two largest economies. So when their trade relations improve, they're likely to import and export far greater quantities of goods between each other.

In turn, this will contribute to lift America's and China's economic prosperity, increasing business investment, job opportunities and wages.

Also, this has strengthened the US dollar, because as a result of the trade truce, the Federal Reserve will feel less pressure to cut America's interest rates below 2.25-2.5%, to support the economy.

When the Fed keeps interest rates steady, this suggests that America's economy can withstand higher borrowing costs and still prosper, which is an encouraging sign.

It's now thought that America and China will resume their trade talks in the coming days.

If the two countries can further reduce their trade tensions, perhaps by cancelling their existing tariffs on each other or agreeing a trade deal, this would further benefit the United States' and China's GDP (Gross Domestic Product) expansion. This might further influence the value of the USD.

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

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