The pound started the new year on the back foot, pulling back from highs of US$1.3250 to close the week below US$1.31. The pound US dollar exchange rate is edging lower as trading in the first full week of the new year begins. The pound is slipping against the US dollar as trading begins for the new week.
The pound traded in a more sombre tone in the previous following soft economic data and amid returning concerns over a no deal Brexit. Last week both manufacturing and construction pmi readings missed analysts’ forecasts. Both sectors remained in contraction territory. Whilst these surveys were taken amid the political uncertainty leading up to the general election on 12th December, analysts are not expecting any meaningful turnaround in the U.K. economy anytime soon.
The UK economic calendar is quiet this week with today’s service sector pmi expected to attract the most attention. Analysts expect the pmi to print in contraction at 49.1. Weakness in the dominant sector of the U.K. economy could prompt fears of another quarter of economic contraction, keeping pressure on the pound.
This week Boris Johnson is due to meet with the President of the European Commission President Ursual Von Der Leyen. Parliament voted in favour of Boris Johnson’s Brexit Bill on 20th December. The U.K. is set to leave the EU on 31st January. Market participants will be paying close attention to any comments regarding the transition period when the two leaders meet. Failure by U.K. and EU to reach a trade deal by the end of 2020 could see the UK crash out in a disorderly Brexit, the worst option for the U.K. economy and the pound according to the Bank of England.
Safe Haven Dollar Rallies
The US dollar closed marginally higher versus its major peers on Friday, as investors digested disappointing manufacturing data and elevated geopolitical risk in the Middle East. Data on Friday showed that the US manufacturing sector contracted at the fastest pace since the financial crisis in December. The ISM manufacturing index fell to 47.2, undershooting analysts forecasts of a slight improvement. Activity in the manufacturing sector has tumbled over the past year amid the US China trade war. The weak data dragged on demand for the dollar.
Meanwhile increased political tensions between US and Iran are supporting the safe haven greenback. As the new week kicks off risk off sentiment amid fears of retaliation from Iran is lifting the safe haven greenback further.
| 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. |