There was very little data or news to guide the pound on Wednesday and rising US inflation expectations lifted the dollar. As a result, the pound US dollar exchange rate fell steadily across the session from a high of US1.3997 to a low of US$1.3918.
|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.
With no high impacting data on the economic calendar pound traders were struggling to find reason to buy into sterling. There was some good news on the stock market, that London listed Shire Pharmaceuticals was bought out by Japanese drug maker Takeda on the fifth attempt.
This is good news firstly because at a cost of £46 billion, there is a large cash inflow but secondly, because despite Brexit uncertainties there are still investment opportunities in Britain. This is an optimistic sign for the economy.
Investors will now look ahead to Friday’s first quarter GDP reading. Last week, a string of weak UK data plus a more cautious sounding Bank of England governor weighed on sentiment for the pound. Investors, who had been optimistic of a May interest rate rise, will look at Friday’s GDP data carefully Should economic growth show signs of stalling, then any remaining hope of the central bank hiking in May will evaporate, which could pull the pound lower.
The dollar has been very strong over recent sessions as investors continue to push US inflation expectations higher and interest rate expectations higher. Inflation and interest rate expectations are currently at the highest level for 4 years. Market participants believe that the Federal Reserve will take a more aggressive approach to monetary policy across the year, raising interest rates faster than what was initially planned and communicated by the central bank.
Strong data this year has been partly the cause of increased interest rate expectations. Today more high impacting data will be released, in the form of durable goods figures. Investors will watch closely to see whether the strong run on data continues. Other important figures will come from Jobless claims and wholesale inventories, giving investors plenty of data to digest.
This article was initially published on TransferWise.com from the same author. The content at Currency Live is the sole opinion of the authors and in no way reflects the views of TransferWise Inc.