The UK based PMI tells us that GBP severely decelerated to 53.9 in April 2018. It is, so far, the lowest level in the past 17 months. This is going to leave the negative impact on GBP / USD. This GBP / USD relationship is heading towards a lower trend and hence, decreasing the chances of the Bank of England to raise the bank rate on May 2018.
The PMI manufacturing report has further said that the upturn in the UK manufacturing sector slowed further at the start of the second quarter, with rates of expansion making easy for output, new productions, and hence, an enhanced employment. This partly reflects a weakening pace of expansion of new work opportunities from abroad.
Factors Responsible for Affecting Exchange Rates of GBP/USD
There are a few key factors responsible to affect these rates:
- Inflation Rate
Changes in the Market Inflation rate cause changes in currency exchange rates. Any country which has a lower inflation rate than another’s will see an appreciation in the value of money.
- Interest Rates
Similarly, changes in the country’s interest rate affect value and dollar exchange rates. Forex rates, interest rates, and inflation are all correlated.
- Country’s Current Account
The balance of payments like trade and earnings on foreign investment, total exports and imports in a financial year and debts etc. all are included. A deficit in this current account due to spending more of its currency on imports rather on exports causes the depreciation.
- Government Debt
If there is any national debt owned by the Central Government, that country is less likely to acquire foreign capital, leading to inflation.
- Terms of Trade
Terms of Trade is the ratio of its export prices to import prices any country’s terms of trade improves if its export prices are higher and vice versa.
- Political Stability
A country’s political stability has a positive impact on its economy, and hence, on the exchange rate. Any country prone to political confusions may see depreciation in foreign rates.
When a country is facing recession, its exchange rate is likely to fall, which lowers the chances to acquire more foreign capital.
If the value of the currency is increasing, investors are going to demand more of that currency. With an increase in its value, comes an increase in its exchange rate as well.
This PMI manufacturing report confirms the general softness of the UK economy indicated by the slowdown trend in UK GDP has risen to 0.1 % over the first quarter of this year while it is going to be decelerating to 1.2 % over the end of the year.
Technically speaking, this GBP / USD relationship, has broken the key support level of 1.37, which represents 38.2 Fibonacci retracement line, moving higher from 1.27 to a 22 month high of 1.47 from Monday. It is still reflecting to be on a declining side.
Great British Pounds, United States Dollars, Purchasing Managers’ Index