The pound rallied to a high of US$1.3180 versus the US dollar on Monday, its highest level since April before retreating. The pound US dollar closed the session higher at US$1.3146. The pair is advancing in early trade on Monday.
Optimism that the Conservatives will win by a clear majority in Thursday’s elections has lifted the pound across recent weeks. The most recent poll showed that Labour is closing the gap on Boris Johnson’s double-digit lead increasing the chances of a hung parliament. Investors see an overall Tory majority as paving the way to Parliament ratifying Brexit and the UK leaving the EU early next year in an orderly fashion.
In addition to the end of Brexit uncertainty, the pound is tying a Tory win with market friendly policies, as opposed to Jeremy Corbyn’s left leaning approach and the uncertainty that he brings to Brexit. With just two days to go until voting day, pound investors will remain fixated with the polls.
Today investors will also look towards the release of UK GDP figures for a snapshot of the health of the UK economy prior to Brexit. Analysts are expecting the British economy grew 0.1% month on month in October, this is up from -0.1% contraction in September. However, the monthly GDP figure tends to be quite volatile, so investors tend to focus on the three-month reading. Expectations are for the economy to have stagnated at 0% growth over the past three months to October. This is down from 0.3% growth in the three months to September. A weak reading could send the pound lower as investors pull forward expectations of a rate cut from the Bank of England.
A Quiet Session Expected For Dollar
The dollar drifted lower at the start of the week amid a lack of catalysts. Optimism from the stellar non-farm payroll report faded and trade headlines were less favourable.
With no high impacting US data due today investors will look ahead to the Federal Reserve monetary policy meeting on Wednesday. The strong labour market data has cemented beliefs that the Fed will keep rates on hold in December.
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. |