After the UK Parliament agreed on a general election and the Federal Reserve cut interest rates, the pound climbed higher versus the US dollar across the previous week. The pound US dollar exchange rate rallied 0.9%, from US$1.2826 before closing the week at US$1.2935. The pair is holding steady in early trade on Monday.
The pound rallied across the previous week as polls showed that Boris Johnson was the favourite to win the general election on 12th December. A clear win by Boris Johnson would be good news for the pound. This is because it would give Boris Johnson a strong mandate to push his Brexit deal through Parliament and quickly. Under this scenario the UK would most likely leave the UK with a deal by the 31st January deadline.
Pound investors will follow the polls closely. Any changes in the polls could create swings and volatility in the pound.
This week pound investors will also look ahead to the Bank of England monetary policy decision on Thursday. Analysts are not expecting the central bank to make any changes to monetary policy. However, the BoE could adopt a less hawkish and more neutral tone, which could weigh on demand foe the pound.
Construction pmi figures will be under the spotlight today. Analysts are expecting activity in the construction sector to have picked up slightly in October, although the sector is expected to remain in contraction.
Trade & Factory Orders Under The Spotlight
The dollar was out of favour against its peers in the previous week. Confusion over developments in the US — China trade talks, a rate cut by the Federal Reserve and a mixed US jobs report saw the dollar move southwards.
128,000 jobs were created in October, better than the 85,000 that analysts had forecast. However, wages increased 0.2%, below the 0.3% forecast and unemployment ticked higher to 3.6%. The data suggests that the labour market is struggling to tighten further. The underwhelming data won’t be something that the Fed ignores, hitting demand for the dollar.
This week investors will continue to watch for any progress in US — China trade discussions and if there is a data for the signing of the phase 1 deal. US factory orders and ISM non-manufacturing data will also be closely eyed. Weaker than forecast figures could prompt investor expectation that the Fed will cut interest rates again. This would pull the dollar lower.
|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.