 |
Election optimism and weak US data saw the pound soar to a 7-month high versus the US dollar on Wednesday. The pond US dollar exchange rate pierced US$1.30, rallying to a peak of US$1.3121, before easing slightly to close the session up 0.9% at US$1.3110. The pair is advancing in early trade on Thursday.
Election speculation boosted the pound in the previous session and on Thursday. The latest poll showed that the Conservatives held a 10-point lead over Labour, indicating that the UK will avoid a hung Parliament. Investors are associating a hung Parliament with continued Brexit uncertainty or a no deal Brexit, neither of which is good news for sterling. Therefore, the prospect of avoiding that scenario is lifting sterling.
Whilst the Conservatives are firmly in the lead, looking back to 2017 elections, the position in the polls can change quickly. The year that Theresa May lost her majority, the polls narrowed sharply in the final days leading up to the election. Should this happen, sterling could come under pressure
Investors were so glued on the polls on Wednesday that they shrugged off data that showed that the UK service sector contracted again in November. The service sector pmi was 49.3 in November, down from October’s 50 level. The service sector is the UK economy’s dominant sector and its main driver of economic growth. The fact the sector hasn’t recorded growth for three months raises concerns over a further slump in the UK economy.
Today there is no UK economic data to attract investors’ attention. Investors will remain glued to any changes in the polls. Any shift in voting intentions could have a large impact on the value of the pound. Boris Johnson’s spending plans for the first 100 days in office are lifting the pond on Thursday.
Trade Headlines Boost Dollar
Weak US data knocked the mood towards the dollar in the previous session. Firstly, the US ADP private payroll report fell short of expectations. Just 67,000 new jobs were created in the private sector in November. This was below the 140,000 analysts expected.
The ISM non-manufacturing index showed that the US service sector also slowed by more than expected in November. The soft data comes following weak manufacturing numbers earlier in the week, elevating concerns over the health of the US economy amid the ongoing trade dispute.
Reports that the US and China are closing in on a phase one trade deal lifted the dollar in the US session. Despite all the to-ing and fro-ing trade headlines are still moving the markets.
|
| 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. |
