Brexit woes and yet more strong US data saw investors favour the dollar over the pound in the previous session. The pound struggled around the $1.29 mark versus the dollar on Thursday. The pair closed lower for the ninth straight session.
|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.|
The pound remains focused on Brexit. Cross party talks between the government and the opposition party, Labour, are reportedly making little to no progress. Some reports even suggest that the talks could collapse as soon as next week. Labour are placing the blame on the Conservatives for refusing to compromise.
UK Prime Minister Theresa May managed to see off another threat to her leadership this week as party members attempted to bring another motion of no confidence against their leader. She survived and current party rules mean that she is now protected from any leadership challenge until December. That said, her party are still urging her to lay out her departure plans.
Theresa May is also considering bringing her Brexit deal back to Parliament for a fourth vote. She is unlikely to win the vote, which has already been rejected 3 times.
The conclusion is that there has been no progress surrounding Brexit. The longer this drags on the more uncertain pound traders can be of a positive ending.
|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.|
The dollar dominated once again on Thursday. US durable goods data added to evidence that the US economy could be more resilient than originally thought. US durable goods orders rebounded from a sharp decline in February and rose by the most in 7 months in March at 2.7%. This was far greater than the 0.8% increase that analysts were expecting. This is encouraging data and comes following strong US retail sales and home sales.
Today investors will look towards the keenly awaited US GDP data. Analysts expect the US economy to have grown by 2.2% quarter on quarter in the first three months of the year. This is a higher forecast than what analysts were predicting at the start of the year. However, the recent batch of solid data, has analysts lifting their expectations. A strong print could lift the dollar.
|How does strong jobs data boost the currency?|
|It works like this, when there is low unemployment and high job creation, the demand for workers increases. As demand for workers goes up, wages for those workers also go up. Which means the workers are now taking home more money to spend on cars, houses or in the shops. As a result, demand for goods and services also increase, pushing the prices of the goods and services higher. That’s also known as inflation. When inflation moves higher, central banks are more likely to raise interest rates, which then pushes the worth of the currency higher.|
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