The pound tanked through the key psychological support of $1.30 on Monday to trade at a low of US$1.2961. The pound picked up again later in the US session to close the day 0.35% lower at US$1.2993. The pair remains below US$1.30 in early trade on Tuesday.
Data showing the UK economy contracted by -0.3% in November weighed on demand for sterling in the previous session. This was worse than the stagnation of 0% that analysts had forecast and was well below October’s 0% print. The manufacturing sector was the biggest drag on the UK economy amid lingering Brexit uncertainty and slower global demand.
Last week, December’s PMI figures showed that the construction and manufacturing sector slipped further into contraction, whilst the service sector stagnated. This means that the UK economy almost certainly contracted in the final quarter of the year.
Brexit uncertainty is set to continue whilst the UK and EU attempt to hammer out a trade deal in under a year. As a result, the outlook for the UK economy remains weak. Market participants fear that the UK economy is heading towards recession.
The soft data comes following the biggest hint yet from Bank of England Governor Mark Carney that the central bank is considering loosening monetary policy. The prospect of lower interest rates has weighed on the value of the pound.
Today there is no influential UK economic data due to be released. Investors will look ahead to Wednesday’s inflation data. Analysts are expecting consumer prices to have increased 0.2% month on month. Any sign of weakness could drag the pound lower.
US Inflation To Boost Dollar?
The US dollar traded broadly lower versus its peers on Monday on improved risk sentiment ahead of Wednesday’s signing of the US – China trade deal and ahead of a heavy week for economic data. US inflation data on Tuesday and retail sales figures on Thursday will be the two key data releases for US dollar. Investors will be watching the releases closely following the disappointing jobs data on Friday.
The dollar could receive a boost from US consumer price inflation data later today. Analysts are expecting inflation to have jumped higher in December to 2.4% year on year, up from 2.1% in November. This would be above the Federal Reserve’s 2% target. Core inflation, which excludes volatile items such as food and fuel is expected to hold steady at 2.3%
|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.