GBP/USD: Dollar Weakens vs. Pound As US - Sino Trade Tensions Ease

The pound US dollar exchange rate traded lower across the previous week, for the third straight week. The pair sunk to a low of US$1.2726 and closed the week at US$1.2748, registering a loss of 0.5% across the week. The pound US dollar exchange rate moved higher in early trade on Monday.

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.

Pound traders will look again towards Brexit. UK Prime Minister spent the previous week trying to drum up support for her Brexit deal. The UK government economists and the Bank of England warned of the impact of Brexit on the UK economy. They highlighted the severity of the expected impact of a no deal Brexit, with the BoE warning of the worst economic slowdown since World War II. Therefore, should confidence in Theresa May’s deal declines further and the chances of a no deal Brexit increase, pound traders will be more nervous putting pressure of the pound.

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.

Theresa May faces an enormous uphill struggle to push Brexit through Parliament. However, some Remainers in her cabinet, such as Michael Gove, are now supporting Theresa May. They fear that not voting in through will result in a second referendum and political chaos.

The UK economic calendar is sparse this week, with industry activity reports attracting the most attention in between Brexit headlines. Today the UK manufacturing pmi will be under the spotlight. Analysts are expecting manufacturing pmi to have ticked higher to 51.7 in November, up from 51.1 in October.

Dollar Traders Look At G20 Progress

The dollar experienced high volatility in the previous week. The dollar was caught between a more cautious Federal Reserve which weighed on demand for the dollar, and geopolitical concerns ahead of the G20 summit, which boosted demand.

All eyes were on US President Trump and China’s President Xi Jinping as they met in Buenos Aires for the G20 Summit. The two powers have been engaged in a trade war for the past 6 months. However, some progress was made at the summit, with the two leaders agreeing to a trade truce. Given the dollar’s safe haven status, the dollar has risen when geopolitical tensions between the US and China escalated. An easing of the tensions could see the dollar fall.

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