A resounding Tory win, a more dovish Fed and a trade deal sent the pound soaring 1.4% higher versus the US dollar across the previous week. The pound US dollar exchange rate closed the week at US$1.3326, after hitting a 19-month high of US$1.3512. The pound is advancing at the start of the new week, up 0.5% at US$1.3388 at the time of writing.
The Conservatives winning a clear overall majority has provided clarity over Brexit which lifted the pound to its highest level since June 2018 in the previous week. The UK will almost certainly leave the EU with a deal on 31st January.
Early next year we can expect investor attention to shift towards the transition period of just one year and the trade deals which must be negotiated within that period. An ambitious plan.
Today investors are looking towards UK PMI data. Analysts are expecting activity in the manufacturing sector increase to 49.4 in December an uptick from 48.9. The dominant service sector is also expected to rebound to 49.6, from 49.3. Whilst these figures would show the sectors to be in contraction, (below 50) they would at least be a step in the right direction.
Safe Haven Dollar Drops On Trade Deal
The dollar slipped lower last week after a more dovish than forecast Federal Reserve. Whilst the Fed kept rates unchanged as was broadly expected, Federal Reserve Chair said that the central bank would need to see significant and persistent increase in inflation to hike interest rates. The more subdued outlook from the Fed weighed on demand for the dollar.
The dollar was also under pressure following the announcement of a phase one trade deal between the US and China. The US agreed to reduce tariffs to .5% on $150 billion worth of Chinese imports. Meanwhile tariffs on 25% would remain on around $250 billion worth of Chinese imports. China has agreed to increase its purchases of agricultural products, although any details were in short supply. The deal has lifted risk sentiment, dragging on the safe haven dollar.
Whilst the US economic calendar is busty, with PMI releases, industrial production and jobless claims, trade headlines still carry the most potential to move the market. Indications that the agreement is good for the US economy could lift the dollar.
| 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. |
