The pound fell sharply versus the US dollar in the previous session. The pair hit a low of US$1.3235 overnight, over 2% lower from its high of US$1.3515 hit following the Conservatives resounding election victory. The pair is extending losses in early trade on Tuesday.
Brexit fears are back to haunt the pound. Sterling dropped as investors grow fearful of a no deal Brexit. Newly elected Prime Minister Boris Johnson has said that there will be no extension to the transition period. This is the period within which the UK has time to negotiate a trade deal with the EU. The current deadline is the end of December 2020. Investors had assumed that Boris Johnson would look to extend this period as it is a very ambitious and potentially un-achievable aim. Failure to agree the trade deal in this time would mean the UK leaves the EU without a trade deal in place. This would be a cliff edge Brexit.
UK labour market data could provide short term direction to the pound, although politics remain in the driving seat. Today investors will look towards the UK jobs data for further clues as to the health of the UK economy just weeks before Brexit. Analysts are predicting that unemployment levels will tick higher to 3.9% in the three months to October, up from 3.8% the previous month. Average weekly wages are expected to fall to 3.4% in the same period, down from 3.6%. A weak labour report could unnerve investors.
Dollar Gains Ahead Of Barrage Of Data
After a weaker start on Monday the dollar gained in strength across the session helped in part by US home-builder confidence. US home-builder confidence jumped to a 20-year high in December amid a housing rebound and strength in the labour market.
Investors will be hoping that today’s barrage of US economic data releases will be equally strong. Investors will look towards housing data, manufacturing and industrial production figures which are expected to rebound after a sluggish few months.
Investors will also continue to wait for further headlines surrounding the US — China trade deal which was agreed at the end of last week. Details surrounding the deal are in short supply.
| 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. |
