The pound soared to its highest level versus the US dollar since October on better than forecast UK data, growing election speculation and elevated trade tensions. The pound US dollar exchange rate jumped to a high of US$1.3011. It closed the session near the high, just below $1.30. Pound is holding these gains in early trade on Wednesday.
Growing optimism that the Conservatives will win an overall majority in the upcoming general election lifted sterling on Tuesday. With 9 days to go until the election, Labour have gained ground in the polls. The latest YouGov poll shows that the Labour party now holds its highest vote share since February.
Despite Labour’s gains, the Conservative maintain a convincing lead, with a safe majority of 10 points over Jeremy Corbyn. A Conservative majority in Parliament is the surest way for Boris Johnson’s Brexit deal to be agreed in Parliament and the UK to leave the EU by 31st January with a Brexit deal in place.
Stronger than expected UK construction data added also offered support to sterling. Data showed that the decline in construction activity eased in November with the construction PMI inching up to 45.3. This is still a good distance from the 50 level which separates expansion from contraction. However, it is a step in the right direction and that was enough to lift the pound.
Today investors will look towards UK service sector pmi figures. The service sector accounts for around 80% of economic activity in the UK. This means that any slowdown in the sector can have a big impact on economic growth as a whole. Analysts are expecting the service sector to remain in contraction in November. Signs of weakness could drag on the pound.
Will US Data Help Dollar Recover?
The dollar was out of favour as President Trump poured cold water on hopes of a US — China trade deal being achieved in the coming weeks. President Trump signalled that he would be willing to wait another year before agreeing a trade deal with China.
The US — China trade dispute is negatively impacting the US manufacturing sector. Investors fear that if there is no trade deal soon that the slowdown in manufacturing could spread across the US economy. As a result, the dollar came under pressure following Trump’s remarks.
Today there is plenty of US data to attract dollar investor’s attention. The most closely watched will be ADP private payroll report and the ISM non-manufacturing data. Strong readings could ease fears over the state of US economy, whilst any signs of weakness will fuel fears that the US economy could be slowing.
|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.