The pound tumbled below US$1.29 for the first time in three sessions on Monday, as weak UK data hit the pound, whilst safe haven investors brought into the dollar. The pound US dollar exchange rate fell continuously across the day hitting a low of US$1.2846.
| What do these figures mean? |
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| 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. |
Data showing the UK economy buckling under Brexit stress and amid a slowing global economy sent the pound lower on Monday. UK GDP printed at just 1.3% year on year, below analysts’ expectations of growth of 1.4%. In December alone the UK economy contracted by -0.4% month on month. Business investment has dried up as the UK has just 45 days to go until Brexit and no deal in place.
Businesses cut investment for the fourth straight month. This is the longest running decline in business investment since the financial crisis. Examples have been hitting the headlines, such as Nissan pulling the manufacturing of a new model from Sunderland and Airbus threatening to do something similar. As the UK economy weakens so has the value of the pound.
| Why does poor economic data drag on a country’s currency? |
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| Slowing economic indicators point to a slowing economy. Weak economies have weaker currencies because institutions look to reduce investments in countries where growth prospects are low and then transfer money to countries with higher growth prospects. These institutions sell out of their investment and the local currency, thus increasing supply of the currency and pushing down the money’s worth. So, when a country or region has poor economic news, the value of the currency tends to fall. |
Today there is no influential UK economic data. Brexit will drive the movement in the pound. UK Prime Minister Theresa May is holding talks with the leader of the main opposition party Labour. Through offering further concessions Theresa May is hoping to win the support of a Labour in a desperate attempt to push her Brexit deal through Parliament. She will give a speech to the House today.
US Avoids Another Government Shutdown
The dollar was in demand on Monday, boosted by its safe haven status. As US — Sino trade talks got underway in Beijing, investors watched headlines closely. Last week news that President Trump would not be meeting with China’s President Xi Jinping before the end of the 90-day trade truce rattled investors. In times of geopolitical tensions investors buy into safe haven currencies, such as the dollar, the reserve currency of the world.
The threat of another US government shutdown has been averted, lifting the dollar. US Democrat and Republican lawmakers tentatively agree a deal on border security to avoid another US shutdown. After January saw the longest US government shutdown in history, investors are relieved there won’t be a repeat in February. Government agencies will remain open.
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