The pound picked up from a low of US$1.3015 to peak at US$1.3150 after UK Prime Minister announced cross party talks to try to crack the Brexit deadlock.
|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.|
Theresa May asked the leader of the opposition party Jeremy Corbyn to join her for talks. The aim is to form a Brexit plan which could break the current impasse in Westminster. This should ensure that the UK leaves the EU with a deal in place.
This is most likely to result in a softer version of Brexit. Possibly with the UK staying in the customs union. This would mean Theresa May crossing one of her red lines, that she has so far refused to breach. However, a softer version of Brexit would also be beneficial to businesses and therefore the pound. As a result, the pound rallied.
|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 will need to request an extension from Brussels to prevent the UK leaving the EU on April 12th without a deal. Theresa May is still hoping for a short extension. However, the EU are reportedly drawing up an offer for a long extension to Article 50, but with strict conditions attached to it. Theresa May will also need to watch for resignations from Brexiteers in her cabinet.
Today, investors might glance briefly towards data from the UK service sector as well. Analysts are expecting the dominant service sector to have slowed in March under the continued strain of Brexit.
The dollar traded broadly flat in the previous session. Durable goods figures were in focus on Tuesday. Durable goods refer to items which consumers buy rarely because they are used over an extended period of time. Strong durable goods numbers point to a confident consumer. Weak durable goods numbers indicate a more nervous consumer.
US durable goods declined -1.6% in February. This was less of a decline than what analysts were forecasting and as a result, the dollar was supported by the data.
|Why does strong economic data boost a country’s currency?|
|Solid economic indicators point to a strong economy. Strong economies have strong currencies because institutions look to invest in countries where growth prospects are high. These institutions require local currency to invest in the country, thus increasing demand and pushing up the money’s worth. So, when a country or region has good economic news, the value of the currency tends to rise.|
Today investors will be watching the private ADP jobs report for clues on the health of the US labour market, ahead of Friday’s non-farm payroll release. Analysts are predicting that around 180,000 private sector jobs were created last month, roughly the same as in February.
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