The pound trended lower versus the US dollar across the first trading day of 2020. The pound US dollar exchange rate closed Thursday’s session 0.8% lower at US$1.3147, close to the session low of US$1.3115. The pair is extending losses in early trade on Friday.
Weak UK manufacturing data combined with rising Brexit uncertainty weighed on the value of the pound in the previous session. The closely watched purchasing managers survey showed that activity in the manufacturing sector slowed in December to 47.5, below expectations of 47.6 and sharply down from November’s 49.1 reading.
The pound dropped as the reading not only missed forecasts, but also showed that the UK manufacturing sector contracted at its fastest rate in 7 years. Slowing global demand combined with companies shrinking their no deal Brexit stockpiles led to the sharp slowdown in activity.
With Brexit uncertainty set to remain over the coming year as the UK and the EU enter into complex negotiations to agree a trade deal in a short time frame, the manufacturing sector is expected to remain under pressure. This could mean that the UK economy would remain overly dependent on the UK consumer sector.
Today investors will look towards the release of construction sector PMI data. Analysts are expecting the sector to stay in contraction. House price data could also be eyed for further clues over the health of the UK economy.
Dollar Rises On Stage 2 Trade Deal Concerns & US Airstrikes
The US dollar rose on Thursday after being under pressure for weeks. An easing of the US – China trade tensions and the prospect of a phase one trade deal being signed and formally entered into by mid-January has boosted the outlook for the global economy. As a result, demand for the safe haven dollar has declined over recent weeks.
As a stage one deal is about to be signed, a key threat to the global economy has diminished. However, investors are starting to fret over the likelihood of a phase two trade deal being achieved. These concerns are lifting the greenback along with elevated geopolitical risk following the US airstrike in Baghdad.
Today dollar investors will switch attention back to the economic calendar with the release of ISM manufacturing data and the minutes from the December Federal Reserve monetary policy meeting.
|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.