The pound experienced a strong start to the previous week, which saw the pound US dollar reach a high of US$1.3213. However, sterling failed to maintain these levels. The pound US dollar exchange rate snapped a two-week winning spell to close lower across the previous week. The pound dropped 0.2% to finish Friday at US$1.3061. The pound is extending those losses in early trade on Monday.
Upbeat UK service sector activity data lifted the pound at the start of last week. The December pmi showed the service sector narrowly avoided contraction, boosting confidence in the UK economy. The UK Withdrawal Bill progressing through Parliament also helped buoy the mood towards sterling.
Mid last week the European Commission President Ursula von der Leyen reaffirmed the pessimistic view that an EU – UK trade deal will not be agreed in just one year. This weighed on demand for sterling. Speculation over the future EU – UK relationship is expected to be a key driver of sterling this coming week.
In the second half of last week, Bank of England Governor Mark Carney dragged the pound lower. In one of his final speeches as Governor of the central bank, Mark Carney gave the biggest clue yet that the BoE could be cutting interest rates sooner rather than later. The pound fell on the prospect of loser monetary policy.
In the wake of Mark Carney’s comments, UK economic data could have the potential to swing the market more than usual. UK GDP and industrial production reports are due today, followed by inflation data on Tuesday and retail sales at the end of the week.
US – China Phase One Trade Deal Signing
Geopolitical tensions, China trade optimism and weaker than forecast non-farm payroll data drove the US dollar across the previous week. The dollar rebounded strongly mid-week from both the US and Iran indicating that they were not looking to elevate tensions further. However, the dollar slipped again on Friday after a disappointing US non-farm payroll report whereby both job creation and wage growth missed expectations.
This week the signing of the US – China phase one trade deal is expected to provide an optimistic backdrop to trading on Monday. With no escalation in geopolitical risks over the weekend, positivity from the US – China trade deal is expected to counter conflict risk in Persia.
|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.