The pound US dollar exchange rate slipped lower on Thursday. The pair dropped 0.1% to close at US$1.2673. This was the lowest close in a week. The pound is heading lower in lower in early trade this morning.
|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 was out of favour on Thursday as investors digested data showing that UK households grew gloomier over the outlook of the UK economy in July. The Gfk consumer confidence index dropped to -13 from -11 as the Conservative leadership race and increasing no deal Brexit fears darkened households’ expectations over keeping their jobs, personal finances and the UK economy as a whole.
Consumer confidence is an important metric because it provides an idea of how consumers are and will spend. When consumers are less confident, they are less likely to spend. In an economy which is so dependent on consumer spending any slowdown can have an impact on economic growth.
|Why does poor economic data drag on a country’s currency?|
|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 investors will look towards UK GDP release. Analysts are predicting that the UK economy grew at 1.8% year on year in the first quarter, or 0.5% quarter on quarter. The first three months of the year benefited from stock piling as businesses prepared for Brexit. This could be the last upbeat GDO reading for a while. The Bank of England Governor Mark Carney said that he expects growth to be 0% in the second quarter.
The dollar advanced in the previous session and is moving slightly higher in early trade on Friday as investors look ahead to the G20 meeting in Japan this weekend. President Trump will meet with China’s President Xi Jinping in a crucial side-line meeting. Investors will be watching closely for any signs that the two powers could end their heated trade war.
Reports that China and the US were laying out an agreement to avert the next round of tariffs on an additional $300 billion of Chinese was helping boost sentiment towards the dollar. Whilst a resolution is unlikely any progress between the two sides could continue to boost the dollar. This is because trade tensions have weighed on the US economy. Optimism that the trade dispute could be resolved going forwards helps boost expectations for the US economy and therefore the dollar.
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