The pound moved higher versus the US dollar for the first time this year on Monday, snapping a four-session losing streak. The pound US dollar exchange rate rallied 0.7% to close at US$1.3176. The pound is advancing versus the greenback as trading kicks off on Tuesday.
Upbeat U.K. service sector activity data lifted sentiment towards the pound in the previous session. Data released by IHS Markit/ CIPS showed that activity in the UK’s dominant sector improved at the end of 2019 after a decisive general election result and some Brexit clarity boosted business optimism. The service sector pmi inched higher to 50 in December, up from 49.3 in November. The level 50 separates expansion in the sector from contraction.
New orders increased and business confidence grew resulting in an increase in employment levels across the sector. The data showed that the service sector experienced the fastest rise in employment for five months. Economists consider PMI’s to be a measure of health of the economy. Given that the service sector accounts for 80% of economic activity in the UK, the outlook for the British economy appears to be improving. This boosted the pound.
Today the U.K. economic data is quiet with no high impacting releases. The pound could come under pressure as investors turn their attention back to Brexit and the transition period. Newly elected Prime Minister Boris Johnson is due to meet Ursula Von Der Leyen, the European Commission President on Wednesday. Investor will be watching for any comments regarding the transition period.
US ISM non-manufacturing up next
The risk off mood eased across the previous session amid no new US -Iran threats and following upbeat data across the board. Demand for the safe haven dollar dropped as the panic surrounding rising tensions in the Middle East paused, although concerns remain.
The dollar remained on the back foot on Monday even following stronger than expected US service sector pmi data. The figures showed that the US service sector experienced moderate growth of 52.8 in December, up from November’s 51.6. Driven by a solid rise in new orders, the data hints towards a further recovery in output growth after a slowdown across the summer.
Today the US service sector will remain in focus with ISM non-manufacturing data. Analysts are expecting growth of 54.5 in December, up from 53.9. A strong reading could help lift the 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.