As risk off dominated, on Thursday, amid growing concerns of the spread of coronavirus the pound dropped versus the safe haven dollar, through resistance at US$1.31 to reach a low of US$1.3097. However, the pound US dollar exchange rate rebounded off that low to close the previous session down 0.16% at US$1.3121. The pound is advancing in early trade on Friday.
The pound traded in a mixed fashion versus its major peers in the previous session. With no high impacting economic data to drive the currency, investors were looking ahead to the end of the month. 30th December is the Bank of England’s monetary policy announcement and 31st January is Brexit.
Market expectations of an interest rate cut by the BoE have been scaled back this week after UK labour market data and business optimism figures from the Confederation of British Industry showed that the British economy could be turning a corner. Rate cut bets wee reduced from 70% to around 50%.
Today investors will look towards the release of manufacturing and service sector PMI’s for further insight into the health of the British economy and likelihood of a BoE rate cut next week. Analysts are expecting the manufacturing sector to remain in contraction in December at 48.7 but less severe than November’s 47.5. Whereby 50 separates expansion from contraction. Activity in the dominant service sector, is expected to push into expansion territory after stagnating in November. Strong readings could help scale back rate cut expectations further, lifting the pound.
Coronavirus concerns continue
The safe haven dollar was in demand in the previous session as investors assessed the spread of coronavirus. At the time of writing the virus had caused 18 deaths, has infected over 600 people in over 10 countries. These figures could be substantially higher. Investors were also gauging the likelihood of the deadly virus curbing global growth.
Today investors will look towards the release of US manufacturing and service sector PMI data. Analyst are expecting both readings to support the view that the US economy is expanding and on a solid footing.
|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.