The pound advanced versus the US dollar across the previous week. The pound US dollar exchange rate pushed to a two-week peak of US$1.3173, before closing the week 0.5% higher at US$1.3077. Sterling is paring those gains as the new week kicks off and as investors look ahead to monetary policy announcements from both the Bank of England and the Federal Reserve.
The pound trended higher last week after solid macro data releases meant that investors scaled back their expectations of the Bank of England cutting interest rates when they meet this week.
Strong labour market figures, in addition to the highest level of business confidence since April 2014 and upbeat PMI figures meant that investors are only pricing in a 50% chance of a 0.25% rate cut. At the beginning of last week expectations had been much higher at 70%. The BoE monetary policy announcement is likely to the principal risk event for the pound this week.
The week also sees the UK leave the EU on 31st January after Boris Johnson’s Brexit bill passed rapidly through Parliament. The bill will be voted on in the European Parliament on Wednesday. Analysts are not expecting this week’s Brexit events to create volatility in the pound as they have been priced in. In the medium to long term, however, the pound could be pressurised if the UK the EU fail to agree a trade deal within the restricted time frame of the transition period.
Coronavirus Fears Remain
The US dollar traded broadly higher versus its peers last week, albeit not the pound. Escalating fear over the outbreak of China’s coronavirus and its potential impact on global trade boosted safe haven currencies such as the Japanese yen and the US dollar. The death toll has increased to 56 and the number of people infected has jumped. Anxiety surrounding the virus remains as the new week begins.
Looking ahead across the coming week the US economic calendar is full, meaning that the US dollar will be vulnerable to event-based risk and volatility. The most closely watched releases this week include Tuesday’s US durable goods orders and consumer confidence figures. The Federal Reserve monetary policy announcement on Wednesday will be the key event for dollar investors closely followed by GDP release on Thursday and inflation on Friday. Data currently indicates that the US economy is on solid footing but not so much so that the Fed needs to adjust monetary policy.
|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.