Despite a fluctuating mood towards the US dollar, the pound tumbled 2.4% lower against the greenback. The pair rallied to a high US$1.3424 before plunging to close at US$1.3004. The pair is edging lower at the start of the new Christmas holiday shortened week, as it touches levels not seen since early December.
Volumes are expected to be low in the foreign exchange markets. This means that movements could be limited but should any market moving news or data come out, the market’s reaction will be more exaggerated compared to when trading volumes and liquidity is high.
The pound plunged last week after newly elected Prime Minister Boris Johnson brought the possibility of a no deal Brexit back to the table. Boris Johnson Boris Johnson’s Brexit Withdrawal bill passed through the House of Commons vote with an easy majority. However, Boris Johnson legislated a deadline of December 2020 for the UK — EU transition period, bringing a cliff edge no deal Brexit back to the table.
By cementing in legislation, the end date of the transition period, Boris Johnson has made his position clear. Businesses can either expect a limited trade deal with the European Union from January 1st 2021, or the possibility of no deal at all.
Brexit developments will continue to dominate ahead of Christmas. Further signs that the UK could be heading towards a cliff edge no trade deal Brexit after December 2020 could weaken the pound further.
China Cuts More Tariffs
The mood towards the US dollar was mixed across the previous week. US — China trade deal optimism weighed on demand for the safe haven greenback. However, towards the end of the week, demand picked up for the US dollar following solid US data and lingering uncertainties surrounding the US — China trade deal.
This coming week there is still a reasonable amount of US economic data for investors to digest, although the reaction from the market could be muted. US new home sales will be released today whilst durable goods orders will be released on Tuesday. This is expected to be the most closely watched data set of the week.
Trade headlines will remain under the spotlight as China announced over the weekend that it will cut imports tariffs on more US products, helping ease trade tensions further. Whilst the US dollar has had a muted reaction to the news so far, the safe haven buck could come under pressure as investors look towards riskier currencies,
|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.