The pound was well matched versus the US dollar on Tuesday. The pound US dollar exchange rate closed the session yesterday at roughly the same level that it started at US$1.2882. The pound is slipping in early trade on Wednesday.
The pound pushed higher in early trade on Tuesday following data that showed a slight improvement in UK service sector activity. The service sector pmi increased to 50 in October, up from 49.5 in the previous month and ahead of analysts’ expectations.
Whilst investors initially cheered the better than forecast figures, the reality is that the UK’s dominant sector, which accounts for 80% of economic activity is stagnant, neither contracting nor expanding. Furthermore, forward looking indicators were also soft, suggesting that there could be more trouble ahead for the sector.
Persistent uncertainty surrounding Brexit has undermined international demand for the UK’s services. Brexit uncertainty and domestic political uncertainty has also negatively impacted domestic demand for the UK services. The outlook remains weak.
Today there is no UK economic data to catch pound traders’ attention. Instead the build up to the UK general election will remain a central focus. Any shifts in the polls could cause volatility. As things stand, Boris Johnson still has a firm lead. This is supportive of the pound because solid win by Boris Johnson means the UK will be more likely to leave the EU with a deal by 31st January. This would remove a large amount of uncertainty that has dragged on the UK economy and the pound.
Trade optimism and strong service sector data sent demand for the dollar soaring in the previous session. The dollar rallied hard across the board.
Strength in the greenback came following reports in the Financial Times that US officials are considering removing some tariffs on Chinese imports as a concession to seal a trade deal, potentially as soon as this month. The Nasdaq and the Dow Jones surged to fresh all-time highs boosting demand for the dollar.
An upbeat ISM non — manufacturing index helped add to the dollar’s strength. Growth in the US service sector rebounded in October, accelerating by more than expected. The data confirmed that the slowdown in US manufacturing had not spread into other areas of the economy, lifting the dollar higher.
Today the US economic calendar is sparse leaving investors to focus on US — China trade headlines.
|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.