The pound had a volatile week of trading last week, even versus the US dollar which experienced muted movement owing to the Thanksgiving holiday. The pound advanced 0.8% versus the US dollar across the previous week, closing at US$1.2923. The pair traded flat versus the US dollar across the month of November.
The pound trended higher in the previous week as hopes grew of the Conservatives securing a majority in the election on 12th December. Optimism of a Conservative overall majority is lifting the pound because investors assume that this is the most believable way for the U.K. to avoid a damaging no deal Brexit and lingering Brexit uncertainty. Market participants are assuming that Boris Johnson’s Brexit deal will be quickly pushed trough Parliament with a Tory majority. This way, the UK should leave the EU with a deal and by 31st January, a pound supportive scenario.
Opinion polls will continue to drive movement in the pound this week ahead of next week’s vote. The latest polls show that the Conservatives are around 7% – 11% ahead of the Labour party. Should the polls show the Conservatives extending that lead, the pound could advance. On the other hand, signs that Labour are closing the gap could weigh on the pound, as this could result in a hung Parliament and more Brexit uncertainty.
UK Manufacturing pmi data could attract some attention from pound investors. Analysts are expecting the sector to remain in contraction.
Will US Manufacturing PMI Lift Dollar?
The dollar was rather subdued across the previous week owing to the Thanksgiving holiday on Thursday and part of Friday. Earlier in the week there had been some market moving events. Firstly, the US GDP showed that the US economy grew faster than initially thought in the third quarter. Annualised growth for the third quarter increased to 2.1%, up from the initial reading of 1.9%. The stronger data supported the dollar.
US – China trade was also in focus last week after President Trump signed the Hing Kong bill into law, angering China and rocking an already fragile relationship. The prospects of the US and China achieving a phase one trade deal will remain in focus today, after China insisted that a trade deal must include the rolling back of trade tariffs. This is something that Trump has so far failed to agree to.
US manufacturing pmi figures will be in focus. Analysts are forecast that activity contracted in November, just less so that in October.
|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.