Stronger US data and continued flows into safe haven assets boosted the dollar on Tuesday, dragging the pound US dollar exchange rate lower. The exchange rate dropped 0.4% in the previous session, closing at a low of US$1.3112. The pair is edging higher in early trade on Wednesday.
With no high impacting UK economic data to digest a little in the way of Brexit headlines, the pound traded at the will of the dollar on Tuesday.
The British Parliament reconvened after the Christmas recess and continued scrutinizing the legislation required to implement Boris Johnson’s Brexit Bill. Investors’ attention will turn to the Brexit transition period as Boris Johnson meets with European Commission President Ursula Von Der Leyen. Ursula Von Der Leyen has already said that the one-year transition period is an extremely tight timeline to put a trade deal together.
Boris Johnson is expected to stand firm on his tight timeline. The newly elected Prime Minister announced that he will also negotiate a free trade deal with the US parallel to EU trade talks in a bid to pile on the pressure on the EU. This news is at least offering some support to the pound. The hope is that at least one of the two deals can be agreed before the end of the transition period at the end of this year.
Dollar Volatile Owing To Safe Haven Status
The US dollar traded with a positive bias in the previous session as investors remained uneasy over tensions between US and Iran. As promised Iran retaliated overnight, attacking the second largest US military base in Iraq. Importantly there have been no causalities which has helped risk sentiment to recover and ease flows into safe havens, which spikes shortly after the attack.
The US dollar also benefited from improved fundamentals on Tuesday after ISM non-manifesting data showed that US service sector was in good health. The index printed at 55 in December, better that the 54.5 forecast. The number was is a stark contrast to the weak manufacturing data which showed the sector was still deep in contraction.
Today attention will remain on the Middle East and Trump’s reaction. Attention could also swing towards US ADP private payroll data. Analysts are expecting 160,000 new jobs to have been created in December. This report is closely correlated to the US non-farm payroll due on Friday.
| 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. |
