The pound trended steadily lower versus the dollar across the previous week. The pair declined for four consecutive sessions closing on Friday at US$1.2832. The pound is advancing against the dollar at the start of the new week.
The pound ended the previous week on the back foot following the release of the Labour party election manifesto and dismal UK economic data.
Data showing that UK businesses experienced their steepest downturn since mid 2016 sent the pound sharply lower on Friday. The IHS Markit/ CIPS UK Purchasing Manager Index (PMI) showed that the manufacturing sector slipped deeper into contraction, whilst the dominant UK service sector also fell into contraction. The data puts the British economy on track for contraction of around 0.2% in the fourth quarter.
As the markets reopen at the start of the new week investors will be once again focused on the political campaigns ahead of the elections 12th December. Last week the Labour leader Jeremy Corbyn unveiled his election manifesto. The high taxes, big spending drive and plans for nationalisation of some sectors unnerved pound investors, weighing on the value of sterling.
Over the weekend, the Conservative leader Boris Johnson released his manifesto. The Tory leader’s manifesto is much less extravagant, increasing spending by £2.3 billion per year, compared to Labours £83 billion increase. The manifesto is being viewed as more business friendly and more restrained than Labour’s spending spree. As a result the pound is in demand in early trade on Monday. Investors will watch the polls closely to see how investors are responding to the two leaders plans. Any sign of Labour narrowing the gap on the Conservatives, could see the pound come under pressure.
Dollar Lower After China’s Olive Branch To Trump
The US dollar surged on Friday versus its peers following a couple of positive macro data prints. Both US manufacturing and service sector pmi readings beat analysts’ expectations. University of Michigan consumer confidence also surprised to the upside. The data calmed investor concerns over a slowdown in the US economy and supported the Fed’s analysis that the economy is in recovery mode.
The dollar is on the back foot at the start of the new week as investors digest trade developments. China will increase penalties for theft of Intellectual Property (IP). This is seen as a gesture of goodwill towards Trump. Risk sentiment has improved in the financial markets dragging on demand for the safe haven dollar.
This week is a holiday shortened week in the US. Even so there are still several high impacting US data points which could drive dollar movement. These include consumer confidence and durable goods numbers. Investors will continue to monitor trade headlines for clues as to whether the US and China are going to agree a trade deal before Christmas.
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. |