GBP/EUR Pound Falls Marginally But Remains Strong Over-All Versus Euro

The pound trended lower versus the US dollar across the previous week. The pair reached a peak of US$1.2948 at the start of the week, before steadily losing ground each session to close the week 1.2% lower below the key US$1.28 level. The pound is gaining versus the dollar at the start of the new week.

Let’s take a look at the factors that have been driving the pound US dollar exchange rate across the week.

Data showing that the UK’s dominant service sector stagnated in October hit demand for the pound last week, as did general election nerves. UK Parliament was officially dissolved in the previous week and the election campaign officially kicked off. Polls show that Boris Johnson is favourite to win the election. A strong win by Boris Johnson is essential in order to ensure that his Brexit deal passes quickly and successfully through Parliament. This would make leaving the EU by 31st January with a deal in place much more likely, avoiding an economically damaging no deal Brexit. Polls showing Boris Johnson to be in the lead could offer some support the pound going forward.

Unexpectedly dovish signals from the Bank of England also hit the pound in the previous week. Two policy makers voted to cut interest rates by 25 basis points immediately, causing BoE interest rate cut bets to rise, pressuring the pound.

This week could be another volatile week for the pound, with a raft of high impacting data due for release. Today investors will be focusing on UK GDP figures. Analysts are expecting the UK economy to have rebounded in the third quarter after contracting in the second quarter. GDP of 0.3% is on the cards after -0.2% decline in the second quarter. This could help support the pound after the gloomy BoE outlook.

Trade Headlines Remain Key For US Dollar

The dollar advanced across the previous week on a mix of stronger than expected service sector data, reduce bets on the Fed easing and US — China trade deal optimism. Headlines indicated that the US and China were inching towards signing a phase one trade deal, which would also include the rolling back of trade tariffs.

With the US manufacturing sector slumping amid the trade dispute, a trade deal would be beneficial for the US economy and therefore the dollar advanced.

This week the focus will remain firmly on US China trade headlines. US inflation data and Fed Chair Jerome Powell’s biannual testimony before Congress next Wednesday and Thursday will also attract attention.

 

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


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