Brexit optimism boosted the pound versus the dollar in the previous week. The pound US dollar exchange rate soared to a 5-month high of US$1.2990 as it closed up 2.5% across the week. So far, the pair has rallied 6.5% in October. The pound US dollar exchange rate is edging lower in early trade on Monday.
Hopes of a Brexit agreement between the UK & EU has lifted the pound across recent weeks. The pound struck a high on Thursday after the UK Prime Minister Boris Johnson and European Commission President Jean Claude Juncker announced a jointly agreed new Brexit deal.
Over the weekend Parliament scuppered Boris Johnson’s Brexit plans. Whilst the latest developments mean a no deal Brexit is less likely, they also increase Brexit uncertainty. Parliament agreeing a deal could potentially be a longer process. The government is sticking with the rhetoric that the UK is leaving 31st October, however an extension until 31st January is also possible.
The increased Brexit uncertainty has pulled the pound lower at the start of the new week. However, given the latest developments also mean a no deal Brexit is less likely, analysts are expecting the pound to hold onto the bulk of last week’s advance.
Brexit will continue to be the exclusive river of movement in the pound.
Quiet Start For US Dollar
The mood soured towards the US dollar in the previous week, following a slew of dismal US data. US retail sales unexpectedly declined -0.3% month on month, the weakest reading in 7 months. The numbers raised concerns the US consumer, central to the health of the US economy, was starting to show signs of cracking. US manufacturing data showed a month on month contraction of -0.5%, the weakest reading in four months. This unnerved investors that the current US manufacturing slump was deepening.
The data has investors believing that the Federal Reserve could cut interest rates again in October. Investors are assuming a 91% probability of a cut, up from 67% a week ago.
US data will play second fiddle to factors driving the pound this week. US housing data and durable goods figures could attract the most attention.
|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 USD
Here, £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 GBP
In 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.