GBP/USD: Strong Dollar Weighs On Pound

The pound held relatively steady versus the dollar for much of the previous session. The pair dropped towards the close, ending the session 0.3% lower at US$1.2905. Today the pound is edging higher versus the dollar, perhaps it will end an 8 straight session losing streak.

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.

Whilst encouraging UK data worked in favour of the pound, Brexit woes continued to work against it in the previous session. UK public sector net borrowing declined to the lowest level in 17 years. Borrowing for the year declined to £24.7 billion, down 41% from the previous year. Although the figure was slightly above the Chancellor’s target of £22.8 billion. Even so, looking at the bigger picture public finances have steadily improved over the past decade as the UK recovers from the last recession. This is good news regarding the UK economy and therefore is supportive of the pound.

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.

Whilst data supported the pound, Brexit and domestic political woes continued to weigh on demand for sterling. Cross party Brexit talks between UK Prime Minister Theresa May and leader of the opposition Jeremy Corbyn are showing few signs of progress. Scotland’s First Minister Nicola Sturgeon is calling for another referendum on Scottish Independence. The continual political instability is impacting demand for sterling.

Today investors will continue watching the Brexit drama unfold. Theresa May’s position at least now looks safe until the end of the year. Attention will also go to the Confederation of Business Industry’s business optimism data. Analysts are expecting to see a slight improvement in April to -16, up from -23 in March.

Dollar Is King

The US dollar traded higher across the board on Wednesday, although there was no fresh data to continue lifting the greenback. Instead investors continued to digest stronger than forecast housing data and impressive retail sales numbers from the previous week. Recent data has pointed to a resilient US economy, whilst other economies across the globe show signs of weakness.

Investors will switch their attention firmly to the US GDP release, due on Friday. Analysts forecast that the US economy grew 2.2% quarter on quarter in the first quarter. Prior to that, though, there’s still big hitting data today in the form of durable goods and initial jobless claim.

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