New lows in the relations between the US and its closest allies saw the dollar weaken as the forex markets opened on Sunday evening. The pound US dollar exchange rate ticked higher to US$1.3414, extending gains from the previous week.
|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.
The pound tentatively gained ground versus the dollar as trading started for the new week. Brexit has been a central focus for market participants over the weekend. Reports over the weekend suggested that the UK government is quietly confident that it will win a series of votes on the Brexit Bill when it returns to the House of Commons on Tuesday.
There had been reports that the UK Conservative Remainers would try to vote against the government in order to try to keep the amendments proposed by the House of Lords, which aimed for a softer Brexit. However, fears have grown that Theresa May could be toppled from her spot as Prime Minister if she loses the vote. Hard line Brexiteer Boris Johnson would be the most likely replacement, which would not be a good alternative for those who want to stay in the EU or at least strike a softer deal over Brexit. For this reason, the party is uniting behind Theresa May and the Brexit bill providing at least some political stability.
|How does political stability boost a currency?|
|Political stability boosts both consumer and business confidence, which means corporations and regular households alike are more likely to spend money. The increased spending, in turn, then boosts the economy. Foreign investors prefer to invest their money in politically stable countries as well as those with strong economies. For foreign investors to put their money into an economy, they need local currency. As they acquire the money needed, the demand for that particular currency increases, which then boosts its value.|
Prior to Tuesday’s vote, there is a decent amount of economic data for investors to digest today. Namely manufacturing and industrial production data, in addition to NIESR GDP reading.
The G7 meeting over the weekend was looking shaky before it even started. US President Trump levying tariffs on Canada and the EU meant that tensions were already strained. However, relations sunk to new lows as Trump left the G7 Summit early after lashing out at fellow leaders, walking away from a “painstakingly negotiated G7 communique” and threatening more trade tariffs. This is the most divided that the G7 nations have been in the 45-year history.
The disunity and increasing geopolitical tensions unnerved dollar traders who are now looking ahead to President Trump’s meeting with North Korea leader Kim Jong Un, in the hope of a more stable performance from the US President.
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.