The pound pushed 0.2% higher versus the US dollar on Monday, closing the session at US$1.2857. The pair is edging lower in early trade on Tuesday as pound investors continued digesting Brexit developments and UK domestic political news.
The EU agreed to grant the UK an extension to Brexit. All 27 leaders agreed to give the UK until the end of January to resolve Brexit. There had been concerns that France would not agree to such a long extension. The extension means that the UK will avoid a no deal Brexit on 31st October. As a result, the pound moved higher.
Parliament also rejected Prime Minister Boris Johnson’s attempt to push for an election on December 12th. Boris Johnson is looking for an election as a way to break the impasse in Parliament and to win a mandate from the UK population to push Brexit through.
Boris Johnson failed to win the two thirds majority in the House of Commons that the Fixed -Term Parliamentary Act states that is needed. The PM will look towards another route of pushing for an election, a simple bill which requires a simple majority.
The pound is trending lower amid growing fear of a December election. An election in 6 weeks would add more political uncertainty to the UK’s already uncertain outlook.
| How does political risk have impact on a currency? |
| Political risk drags on the confidence of consumers and businesses alike, which means both corporations and regular households are then less inclined to spend money. The drop in spending, in turn, slows the economy. Foreign investors prefer to invest their money in politically stable countries as well as those with strong economies. Signs that a country is politically or economically less stable will result in foreign investors pulling their money out of the country. This means selling out of the local currency, which then increases its supply and, in turn, devalues the money. |
Dollar Investors Look To Consumer Confidence Data
The dollar was broadly out of favour at the start of the week. Trade hopes boosted risk sentiment, sending the S&P to a record high, whilst the dollar eased lower. President a Trump had confirmed that he expects to sign a trade deal with China at the APEC meeting in Chile in November. This is ahead of schedule, fuelling optimism that trade talks are progressing well. As risk sentiment increases, investors often trade out of the safe haven US dollar in search of riskier assets.
This week is a busy week for US dollar investors. There are plenty of high impacting events and data releases for dollar investors to monitor. Today investors will look towards US consumer confidence. Analysts forecast that US consumer confidence increased in October to 128, up from 125.1 the month prior. A strong reading could lift the dollar.
| 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. |
