The pound US dollar exchange rate declined 0.3% to close Monday’s session at US$1.2429. The pair is seen treading water in early trade on Tuesday.
The pound was out of favour in the previous session and is trading cautiously today, as investors await the UK Supreme Court’s ruling on Prime Minister Boris Johnson five-week suspension of Parliament. Later the UK’s highest court will announce whether the proroguing of Parliament for such an extended period of time, just prior to Brexit was lawful. This is one of the most significant constitutional cases taken in the UK in decades.
Should the court decide that Boris Johnson lied to the Queen and acted unlawfully then Parliament could be reconvened immediately. This would give minister more time to prevent a no deal Brexit going through and as a result the pound could rally.
On the other hand, should the court rule that the move by the Prime Minister is purely political and legal, this means that ministers will not be recalled to Parliament until mid-October. Consequently, they will have just two weeks to attempt to stop the UK leaving the EU in a disorderly fashion.
| Why is a “soft” Brexit better for sterling than a “hard” Brexit? |
| A soft Brexit implies anything less than UK’s complete withdrawal from the EU. For example, it could mean the UK retains some form of membership to the European Union single market in exchange for some free movement of people, i.e. immigration. This is considered more positive than a “hard” Brexit, which is a full severance from the EU. The reason “soft” is considered more pound-friendly is because the economic impact would be lower. If there is less negative impact on the economy, foreign investors will continue to invest in the UK. As investment requires local currency, this increased demand for the pound then boosts its value. |
Dollar Investors Look To Consumer Confidence Figures
The US dollar gained across the board on Monday. Better than expected US manufacturing PMI data and a general risk off sentiment drove investors towards the dollar for its safe haven properties.
US — Sino trade talks are showing few signs of progress. Furthermore, the impact of the trade dispute and its effects on global demand is being reflected in global manufacturing data. Germany and the eurozone posted dire manufacturing PMI’s unnerving investors.The US dollar is the reserve currency of the world. In times of greater geopolitical or economic strain, investors often buy into the safe haven dollar.
Today dollar investors are looking ahead to US consumer confidence data. So far US consumer confidence has remained buoyant even as the U manufacturing sector experienced a slump. Investors will want to see that consumers remain confident. This is important because when consumers are confident, they tend to spend more supporting the US economy.
| What do these figures mean? |
| When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written: 1 GBP = 1.28934 USD Here, £1 is equivalent to approximately $1.29. This specifically measures the pound’s worth against the dollar. If the US dollar amount increases in this pairing, it’s positive for the pound. Or, if you were looking at it the other way around: 1 USD = 0.77786 GBP In this example, $1 is equivalent to approximately £0.78. This measures the US dollar’s worth versus the British pound. If the sterling number gets larger, it’s good news for the dollar. |
