The pound recovered from early losses on Wednesday. After dipping below US$1.30 in early trade in the previous session the pound rose to close just above break even at US$1.3025. GBP/USD is holding steady in early trade on Thursday.
U.K. inflation increased by a less than expected 1.3% year on year in December. This was softer than the 1.5% increase in consumer prices that city analysts had been expecting. The weaker inflation reading comes just days after dismal U.K. GDP data. The UK economy contracted -0.3% in November much worse that the stagnation in October as the U.K. economy struggles amid Brexit uncertainty and a slowing global economy.
Weak inflation and lacklustre growth mean the Bank of England is more likely to adopt a more dovish stance. In a speech on Wednesday Michael Saunders was clear when he said that it would be appropriate to maintain an expansionary policy stance and possibly cut rates further. , Michael Saunders added to dovish rhetoric from Carney, Vileghe and Tenreyo earlier in the month. If UK data fails to improve between now and the end of the month the BoE are likely to cut rates. The pound fell on the prospect of lower interest rates.
Today investors will look towards the BoE’s bank liabilities and credit survey for further clues over the health of the UK economy.
Will US Retail Sales Lift Dollar?
The US dollar dipped lower as the US ad China signed the first phase trade. Despite the two sides signing the historic deal, the US announced that it will not cut tariffs on Chinese imports until after the US presidential elections. This is so that the White House can observe compliance to the agreement. Sentiment improved when US Treasury Secretary Steve Mnuchin said that China had agreed to put together very significant laws to follow through on its phase one commitments. He aso confirmed that there will be additional tariff roll backs in phase two. The safe haven dollar eased lower.
Today investors will look towards US retail sales. Analysts are expecting sales to increase 0.3% month on month in December, up from 0.2% the previous month. 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.