British election speculation drove the pound to a 7-month high versus the US dollar across the previous week. The pound rallied each day versus the greenback, except on Friday, owing to dollar strength. The pair closed the week 1.5% higher at US$1.3137. Sterling is advancing versus the dollar at the start of the new week.
The pound has trended higher as investors grow increasingly confident that the UK Conservative party will win the election this Thursday with an outright majority. The latest YouGov polls shows that the Tory lead has extended to 11 points. The Tory’s have held a solid lead over the Labour party for several weeks. Some investors had been concerned that Labour could see a late surge in support but so far that hasn’t been the case.
Financial markets are in favour of Conservative overall majority partly due to the party’s insistence that it will get Brexit done. With a Tory majority in Parliament, Boris Johnson’s Brexit bill should be ratified in time to ensure the UK leaves the EU with a deal at the end of January, bringing to a close years of Brexit uncertainty.
The general election is just days away so political developments will dominate. Any shift in the polls could have a dramatic impact on sterling. Volatility could pick up as the election approaches.
Impressive NFP Ahead Of Fed Decision This Week
The US dollar trended lower across the previous week as investors digested weak macro-economic data releases ahead of the US Labour department’s non-farm payroll. The ADP private payroll report fell well short of expectations and the employment component in the ISM manufacturing and non-manufacturing reports declined. However, the US non-farm payroll smashed expectations with 266,000 jobs created in November. This was well above the 180,000 analysts had forecast. The unemployment rate dropped to 3.5% the low from 2019 and the lowest level since 1969. Average hourly wages also increased beyond expectations to 3.1% year on year growth.
The data calmed any fear over the health of the US economy, as investors look ahead to the Federal Reserve monetary policy meeting this week. According to the CME Fedwatch tool, the market is pricing in a 99.3% probability that the Fed keeps policy unchanged.
Today the dollar is under pressure. US – China trade tensions prevail after Trump calls on the World Bank to stop lending to China. This will aggravate tensions just days before the Trump administration is due to implement further tariffs.
|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.