The pound trended lower for a fourth straight session on Tuesday. The pound US dollar exchange rate slipped through $1.30 to a nadir of US$1.2974. However, the pair rebounded off this low managing to finish the session over the key psychological level of US$1.30. Investors will be looking to see whether the pair can hold this level across Wednesday, ahead of the Federal Reserve monetary policy and the Bank of England monetary policy announcement on Thursday.
At the time of writing, GBP/USD is trading 0.1% lower at US$1.3013
The pound was under pressure in the previous session following disappointing retail sales data from the Confederation of British Industry (CBI). The latest CBI report showed that retail sales stagnated in December and early January, for a third consecutive month. The report was even more concerning given that it covered the Christmas and holiday shopping period. Analysts are expecting a bounce in consumer confidence following the improved political landscape after December’s election. However, so far, the data hasn’t shown much, if any, evidence of such a bounce.
Recent data has been very mixed. Whilst retail sales have been disappointing, labour market data and PMI figures have been upbeat. Rate cut expectations have come down this week; however, there is still a 50 / 50 chance that the BoE will cut interest rates tomorrow.
Also weighing on demand for sterling is UK’s decision to continue using Huawei for Britain’s 5G network. The controversial decision by Boris Johnson could dash Britain’s chances of securing a quick post Brexit trade deal with US.
The mood towards the dollar remained firm in the previous session on safe haven buying, although risk sentiment picked up later in the US session. Investor optimism was on the rise despite worrying statistics with the US stock markets closing in positive territory. US data flow also surprised to the upside. US durable goods orders increased 2.4% month on month in December and US consumer confidence also climbed higher than forecast to 131.6 in January.
Attention will now turn to the Federal Reserve which is due to give its monetary policy announcement later today. The Fed are not expected to adjust monetary policy, with most officials deeming that risks are balanced, and monetary policy is appropriate following three rate cuts over the summer. According to the CME Fedwatch investors are pricing in a 60% chance of rates being kept on hold, 27% probability of a rate cut and 13% chance of rate hike in today’s meeting.
| 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. |
