 |
The pound dropped sharply versus the US dollar on Thursday after the UK Labour leader unveiled his election manifesto. The pound rallied to a high of US$1.2980 before sinking back towards US$1.29. The pound is holding steady in early trade on Friday.
The Labour party’s election manifesto was much further left than what the markets had been expecting. Jeremy Corbyn pledged to hike taxes and unleash a huge spending drive. Corporate UK fears that Corbyn is wanting to return the UK to 1970’s state intervention.
Corbyn’s spending plans came on the same day that data showed that UK net borrowing figure in October hit the highest level in five years. This is most likely due to Brexit preparations and as Jeremy Corbyn highlighted, it is unlikely to deter the next Prime Minister from spending. However, investors and voters could start to question how increased fiscal spending will impact the economy.
Today investors will continue to keep a close eye on the polls. Following Jeremy Corbyn’s manifesto scare, and signs that he is closing the gap on Boris Johnson could see the pound drops sharply lower. Investors could also glance towards UK PMI figures. Analysts are expecting activity in the manufacturing sector to have contracted further in October, slipping to 48.8, down from 49.6. The figure 50 separates expansion from contraction. The dominant service sector is expected to remain stagnant at 50 for the second straight month.
Dollar Remains Trade Dependent
The US dollar shook off early weakness to climb higher in the US session on Thursday as investors remained focused on the US — Sino trade dispute which has now been going on for over 16 months. One again risk sentient seesawed on mixed messages as to whether the US and China are able to agree on a phase one trade deal to end trade tensions between the two powers. Investors had been optimistic of an imminent trade, however more recent harder rhetoric suggests that there is more distance between the two sides. The dollar is very trade orientated right now.
Also boosting the buck were better than forecast existing home sales which jumped 1.9% in October after declining -2.2% in September
Today trade will remain the central focus. US manufacturing pmi and service sector pmi could support the dollar in the US session.
|
| 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. |
