Sterling recovers post weaker US data

Weak US economic data has caused the Pound Sterling to rise vertically, increasing market risk appetite. Investors are still awaiting significant monetary policy announcements from the Bank of England and the US Fed, though.

The GBP/USD exchange rate is still tense because investors believe the BoE will maintain current interest rates. Because of concerns about a slowdown in the UK economy, investors think the BoE will keep interest rates unchanged, which puts the pound sterling’s demand at risk.

Investors will also be looking for guidance regarding the outlook for inflation and interest rates. The pledge made by UK Prime Minister Rishi Sunak to cut inflation to 5.4% by year’s end is difficult to meet given that September’s annual price growth was 6.7%.

The US Dollar Index fell sharply after weak US private payrolls and factory data. The ISM Manufacturing PMI for October was significantly lower at 46.7 vs. expectations and the former release of 49.0.

New factory orders fell significantly to 45.5 against the former reading of 49.2. On the contrary, the survey of private factories done by S&P Global for October showed that the Manufacturing PMI came in at the 50.0 threshold, which separates expansion from contraction in factory activity.

Geopolitical tensions and market caution ahead of the BoE meeting are causing the Pound Sterling to be uncertain. The BoE is expected to maintain interest rates at 5.25%, marking the second consecutive rate hike. Investors are also concerned about UK Prime Minister Rishi Sunak’s inflation target.