GBP/USD: Pound Starts Marginally Higher vs. Dollar As May Vows To Stay

The pound dived in the previous session as Brexit headlines dominated trading. From a day’s high of $1.3030 the pound plummeted versus the dollar to a low of US$1.2751. This is the lowest level that the pound has traded at against US dollar since the end of October. The pound is edging higher in early trade on Friday.

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 USDHere, £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 GBPIn 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.

UK Prime Minister Theresa May managed to push the Brexit deal that she had negotiated with the European Union (EU) through her cabinet after a gruelling 5-hour session. However, her cabinet, despite agreeing to it were not completely behind her. The pound dived as Brexit secretary Dominic Raab handed in his resignation on Thursday. Four ministers have now resigned, two from the cabinet in reaction to the Brexit deal.

Pressure continues to mount on Theresa May whose political life hangs in the balance. A growing number of Conservative Ministers are said to have handed letters of no confidence to the Chairman of the 1922 Committee. 49 are needed to trigger a vote of no confidence. This is making pound traders jittery because if Theresa May goes then there is no hope of a Brexit deal being achieved. Leading economists top and business leaders have regularly voiced concerns over the impact that a disorderly, hard Brexit would have on the UK economy. The mere prospect of Theresa May being voted out and a disorderly Brexit is making pound traders very nervous.

Why is a “soft” Brexit better for sterling than a “hard” Brexit?
A soft Brexit implies anything less than UK’s complete withdrawal from the EU. For example, it could mean the UK retains some form of membership to the European Union single market in exchange for some free movement of people, i.e. immigration. This is considered more positive than a “hard” Brexit, which is a full severance from the EU. The reason “soft” is considered more pound-friendly is because the economic impact would be lower. If there is less negative impact on the economy, foreign investors will continue to invest in the UK. As investment requires local currency, this increased demand for the pound then boosts its value.

Brexit developments will remain in focus as the weekend approaches. There is no influential data on the UK economic calendar today.

US Manufacturing & Industrial Production In Focus

The dollar was on the front foot in the previous session after US retail sales increased by more than what analysts had been predicting in October. Retail sales jumped 0.8% in October, analysis had been forecasting that retail sales would increase just 0.5%. The stronger than forecast reading comes as a strong jobs market and low unemployment rate is underpinning consumer spending. Higher retail sales point to stronger inflationary pressure going forward, as a result the dollar moved higher.

Today investors will look towards US manufacturing and industrial production figures. Whilst analysts are predicting that manufacturing numbers will remain constant, they also predict that industrial production will tick lower, which could weigh on the dollar.

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Inc., Currency Live or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. Consult our risk warning page for more details.

This article was initially published on 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.