Sterling jumped higher versus the US dollar on Tuesday as investor speculation of an BoE interest rate cut at the end of the month eased. The pound US dollar exchange rate rallied to a high of US$1.3083 before easing off into the close. The pair ended the session up 0.4% at US$1.3043. The pound is holding steady against the dollar in early trade on Wednesday.
The pound surged in the previous session after UK labour market data. Numbers from the Office of National Statistics (ONS) showed that the British economy created jobs at the strongest rate in almost three years in the three months to November. 208,000 jobs were created against the 110,000 that analysts had forecast. Wages were also stronger at 3.2%, beating analysts’ expectations of 2.9% growth. With low inflation UK wages are rising in real terms.
Recent UK data has been poor, which has boosted the case for a rate cut by the Bank of England possibly as soon as 30th January. However, yesterday’s data potentially undermines the case for a central bank rate cut next week. Market expectations of a rate cut have declined from 70% prior to the labour market data to 62% after. As a result, the pound gained.
Today investors will turn their attention to the state of public sector finances ahead of Brexit in just 9 days’ time. Analysts expect public sector net borrowing to have ticked lower in December to £4.6 billion, down from £4.9 billion in November. The Telegraph newspaper reporting that the EU will offer the UK a trade deal with worse conditions than Canada and Japan could drag on the pound.
Trump’s Impeachment Trial, Coronavirus & Housing Starts
US dollar traded broadly flat versus its peers on Tuesday, albeit lower versus sterling, as risk off dominated in the broader financial and forex markets. Investors reacted negatively to news that coronavirus, China’s killer virus is spreading rapidly across the globe, already in 5 countries including China, Taiwan, Japan, Thailand and the US. There are fears over the potential size and scale of the outbreak of the virus likened to SARS. The World Health Organisation is meeting to consider declaring a global health emergency.
The spread of the coronavirus will remain on investors’ radars today, keeping risk sentiment in check, as will Trump’s impeachment trial. Traders could also look towards mid-tier US data such as US existing home starts for further insight into the health of the US economy.
|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.