The pound put in a solid end to a spectacular end to 2019. The pound rallied over 1% versus the US dollar on Tuesday, taking the exchange rate to a high of US$1.3282 before closing out the year at US$1.3261. As a result, the pound rallied 2.5% across the month of December, and jumped 8% after rebounding from the low of US$1.1960 in early September. Sterling was edging lower as trading started in 2020.
The gains in the pound were exaggerated by thin holiday volume on 31st January ahead of the New Year Break. Whilst traders and investors will be returning to the market today and Friday, volumes are expected to remain thin until Monday.
Whilst some Brexit clarity has lifted the pound, concerns remain over the health of the UK economy ahead of Brexit. The UK manufacturing sector will be in focus today as investors await manufacturing pmi data. Analysts are expecting the sector to remain deep in contraction at 47.6 in December, up slightly from 47.4. The figure 50 separates expansion from contraction. The data could well highlight the struggles that the manufacturing sector is facing ahead of the UK’S departure from the European Union.
The UK will leave the EU on 31st January. However, it will remain in the single market and the customs union through the transition period, which terminates on 31st December 2020. During this period Boris Johnson and his team will need to negotiate a trade deal. These negotiations will be the central driving force behind the pound.
Improved Risk Sentiment Hits Dollar
The dollar has given up ground versus major rivals across the past week as risk sentiment has improved. President Trump confirmed that the phase one trade deal with China will be signed on 15th December. Trump will then head to Beijing to begun phase two trade talks. The fact that the trade deal could be formally entered into in a matter of weeks has boosted sentiment towards the global economy, dragging on demand for the safe haven dollar.
News that China has also announced a reserve ratio cut of 50 basis points is also lifting risk sentiment across the Asian session. The move aims to inject liquidity and lower costs to businesses. The news is overshadowing data showing that growth in Chinese manufacturing sector slowed in December.
US data points of interest today include initial jobless claims and US manufacturing pmi figures.
|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.