The pound dipped below $1.30 for the first time since the end of April on Wednesday, as Brexit woes hit demand for sterling. US — Sino trade was the focus for the dollar. The pound US dollar exchange rate hit a nadir of US$1.2988.
|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.|
Brexit optimism had lifted the pound last week, investors grew increasingly confident that the cross party talks between the government and Labour would result in a Brexit agreement that could be pushed through Parliament.
UK Prime Minister Theresa May’s team have now indicated that the talks are in fact close to stalling. Theresa May is growing under increasing pressure to step down as Prime Minister, or at least set up a timeline for her exit. The calls for her resignation have grown louder since it has become apparent that the UK will be taking part in the EU Parliamentary elections on May 22nd.
In an attempt to pacify those trying to oust her, Theresa May has said that she will put her Brexit Agreement back to the House of Commons for another vote before the potentially toxic EU Parliamentary elections.
With no accord between Theresa May and Labour, the chances of her Brexit deal being agreed on by ministers and making it through Parliament are extremely slim. Another failure by the PM to get a Brexit deal approved could pull the pound lower.
|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.|
Today the UK economic calendar is once again very quiet, giving investors little to distract them from Brexit frustrations and domestic politics.
Dollar traders were watching developments in the US — Sino trade dispute closely. The dollar had risen strongly in previous sessions after President Trump stood ready to escalate the US — Sino trade dispute. This drove investors towards the greenback for its safe haven qualities.
On Wednesday, Trump tweeted that China was coming to the US to make a deal. This tweet boosted optimism that a trade deal could still be within grasp. As market sentiment broadly improved, the dollar eased back from earlier highs.
Today the start of two day trade talks begin in Washington. Dollar traders will be watching headlines intently. On the economic calendar the US trade balance and initial jobless claims will be in focus.
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