Activity fell for the third month in a row with business optimism plummeting to its lowest level since November 2012. Commenting on this morning’s data, Group Director at the Chartered Institute of Procurement and Supply Duncan Brock noted: “The sector felt the pressure of challenging economic conditions and the impact of another disastrous drop in demand growth, as purchasing activity petered out and Brexit nibbled away at confidence and decision-making. Though the sector’s activity improved marginally on last month’s biggest fall in a decade, this third month of contraction in a row makes for gloomy reading.” Overnight, US President Donald Trump stated that he would impose an additional 10 percent tariff on $300 billion worth of Chinese imports on 1 September.

He cited China’s failure to fulfil a promise to purchase large amounts of US agricultural products.

This increased tension leaves the dollar under pressure as markets anticipate significant policy loosening from the Federal Reserve, pricing in a 50 basis point cut by the end of the year. 

Meanwhile, on Thursday the Bank of England (BoE) left interest rates unchanged but slashed economic growth forecasts to 1.3 percent growth in 2019 and 2020 with provisions that the UK avoids a disorderly Brexit. 

The bank warned a no-deal Brexit would cause a further drop in the value of the pound, dampening Sterling sentiment in the process.

Commenting on this, Governor Mark Carney struck a pessimistic tone: “In the event of a no-deal, no transition Brexit, Sterling would likely fall, the risk premiums on UK assets would rise and volatility would spike higher.”

Persistent worries about a no-deal Brexit and the bank’s lower economic growth forecasts pushed the pound US dollar exchange rate towards a 30-month low on Thursday.

Looking ahead to this afternoon, the dollar could slide against the pound following the release of US non-farm payrolls data. 

If July’s payrolls fail to rise as high as forecast this could dampen sentiment in the dollar. 

Meanwhile, looking ahead to the start of next week, the pound could edge up following the UK services PMI release. 

GBP/USD could rise if July’s PMI reveals the services sector has expanded more than forecast. 

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