Pound plunges as UK PMIs stoke recession fears

The pound tumbled yesterday after worryingly weak PMI results raised fears of a coming UK economic recession.

So far today GBP is mixed, with GBP/EUR wavering at €1.1705 and GBP/USD down to $1.2707. GBP/CAD is fluctuating around CA$1.7200, while GBP/AUD and GBP/NZD have climbed to AU$1.9669 and NZ$2.1341, respectively.

Coming up, the latest US initial jobless claims data could impact USD. Forecasters expect the figure to hold steady – any unexpected results could drive volatility.

What’s been happening?

The pound slumped during yesterday’s session after the UK’s latest PMI results came in far worse than forecast.

UK business activity unexpectedly contracted for the first time since January, stoking fresh fears of a possible recession. Furthermore, signs of easing inflation dampened Bank of England (BoE) interest rate hike bets.

The euro also suffered selling pressure after similarly downbeat PMI surveys. Private sector activity shrank at its fastest pace since November 2020, leading the single currency to stumble.

However, EUR was propped up by its negative correlation to the US dollar, cushioning it against its weaker peers.

After an initial upside, the ‘greenback’ relinquished its gains in the afternoon when the US PMIs kept with the day’s trend of disappointing data. Service sector activity slowed more than expected while manufacturing went deeper into contraction.

What’s coming up?

Today’s session could bring further weakness in the pound. Forecasters expect the Confederation of British Industry’s (CBI) distributive trades survey for August to reveal another slump in retail trade, potentially adding to the UK’s increasingly bleak economic outlook.

Later on, a sharp decline in US durable goods orders could dent the US dollar.

The latest US initial jobless claims figure may also drive movement. Claims are expected to have risen at a steady pace; an unexpected rise could dent USD, while a drop may see the ‘greenback’ gain ground.

Meanwhile, Eurozone data is in short supply. As a result, EUR may trade true to its strong negative correlation with USD.