Sterling was broadly unchanged against the US dollar on Thursday as market participants weighed a notable deterioration in domestic business activity, while attention in currency markets continued to be drawn to developments around the Iran war.
At the time of the data release, sterling was quoted flat at $1.3437 versus the dollar and was up 0.13% against the euro to 86.42.
S&P Global’s preliminary UK Composite Purchasing Managers’ Index (PMI) for May registered 48.5, down from 52.6 in April. That result represents the first reading below the 50.0 threshold since April 2025 and fell short of the 51.6 median forecast in a Reuters poll. By convention, a PMI below 50.0 is interpreted as indicating a contraction or slowing of activity.
The survey highlighted that British firms reported their broadest fall in activity in more than a year. The PMI report attributed the weakness to economic impacts stemming from the Iran war alongside domestic political uncertainty.
This softer picture from the PMI sits alongside other recent, more positive indicators for the UK economy. First quarter gross domestic product figures released last week pointed to strong growth in that period. Additionally, consumer price index readings for April showed inflation eased to 2.8% from 3.3% in March, undershooting a 3% forecast.
The juxtaposition of the weak business activity survey with the solid GDP print and a lower-than-expected inflation reading creates a mixed near-term data set for the pound. Market participants continued to monitor developments related to the Iran war, which the PMI report cited as a factor weighing on business conditions.
In sum, sterling’s sideways move against the dollar on Thursday reflected an adjustment to fresh PMI data pointing to contraction in May, while other recent macro releases painted a stronger or cooling inflationary backdrop.
Market context: Currency markets remained sensitive to geopolitical risk while digesting divergent economic indicators for the UK.