The pound tanked in its worst one-day session in 13 months on Tuesday. The pound US dollar exchange rate plummeted to low of US$1.3072 overnight, wiping out all the gains from the election. The pound is heading lower in early trade on Wednesday.
The pound dived as newly elected British prime minister Boris Johnson said that there would be no extension to the transition period. This means that if the UK does not agree a trade deal with the EU within the 1 year transition period, the UK will leave without a trade deal. Despite Boris Johnson’s moto of “get Brexit done” the move by the new prime minister caught pound investors off guard. Boris Johnson has put a no deal Brexit back on the table. This is the worst outcome for UK businesses, the UK economy and therefore the pound.
Pound investors were so tied up in Brexit that they shrugged off mixed UK labour data. Data showed that the UK unemployment level fell to the lowest level since January 1975. However, average wages rose just 3.2%, in the three months to October, significantly down from 3.6% the previous month. The mixed data had little impact on sterling.
Today investors will continue digesting Brexit developments. Investors could also glance towards UK inflation numbers. Consumer prices are expected to have increased 0.2% month on month in November, this is up from October’s -0.2% decline. A strong reading could help underpin the pound.
Dollar Advances Despite Trump Facing Impeachment
The US dollar strengthened versus its peers in the previous session as optimism over Brexit faded and scepticism over the US — China trade deal grew. The absence of clarity surrounding the US — Sino phase one trade agreement is unnerving investors. As risk appetite starts to wane, investors are looking towards the safe haven US dollar.
US macro data has also been supportive for the greenback. US manufacturing production rose by more than expected in November at 1.1% versus 0.7% expected. The sector finally appears to be stabilizing after being weakened by the 17-month long trade dispute.
Today there is no high impacting US data due to be released. President Trump faces impeachment today. However, in the Senate the vote is unlikely to get the two thirds majority required to oust the president. It is therefore a non-event for the US dollar.
|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.