Economic activity in the services sector contracted in December for the first time since May 2020, according to the Institute for Supply Management, suggesting that recessionary pressures are building in the US. The report, released last Friday, showed the headline figure fall to 49.6 from a prior 56.5, while business activity fell by 10 points to 54.7. The numbers suggest the US economy is heading for, or may even be in, a recession in the early part of 2023.
Friday’s weaker-than-expected ISM data, and lower average hourly wage growth seen in the latest US Jobs Report, hit the US dollar hard. The greenback just failed to make a fresh multi-month low but remains weak with little short-term support seen on the daily chart.
US Dollar Currency Index – January 9, 2023
The US dollar sell-off is noticeable in a wide range of US pairs including cable (GBP/USD). The pair has rallied from a Friday low around 1.1850 to a current level of 1.2160 with Sterling in the passenger seat while the greenback drives the move. The British Pound is trying to move higher in itself today but the economic backdrop remains neutral to negative as the UK government struggles to control a raft of strikes currently hitting the country. The UK now needs to solve the current wave of industrial action otherwise the current small bid in Sterling will quickly evaporate.
After Friday’s US dollar sell-off, cable is now back above all three moving averages and a confirmation of this move in the next couple of days may well set the pair up for another leg higher. With little in the way of UK economic news until the end of the week, it looks likely that the US dollar will continue to be in charge of cable.
GBP/USD Daily Price Chart – January 9, 2023