The pound was the best performing G7 currency last week after the Bank of England voted to keep interest rates on hold and as the UK left the EU. The pound US dollar exchange rate rallied 0.95% across the week closing at US$1.3207 its highest close in 7 weeks. The pound is extending those gains as trading kicks off at the start of the new week. The pound is 0.5% at US$1.3155 at the time of writing.
GBP/USD – GBP pushed higher with pound investors cautiously optimistic
The Pound sterling received a boost last week after the Bank of England voted 7-2 to keep interest rates at 0.75%. The vote split was more hawkish than investors were expecting, and the central bank was broadly more optimistic than expected, boosting the pound, despite cutting economic growth forecasts to the lowest level since the second world war.
The UK left the European Union on Friday, 47 years after joining and 3.5 years after the referendum. The pound pushed higher with pound investors cautiously optimistic. The UK will remain in the single market and the customs union until the end of the year. Attention now will be on the UK and EU’s ability to agree a trade deal within that short time frame.
Today Boris Johnson will give a speech setting out his vision for future relations with EU. He is expected to say that any deal which includes high alignment on rules with the EU will be rejected. His hard – headed approach is likely to clash with the EU, raising fears of no trade deal being agreed.
Dollar
The dollar remained fairly resilient across the previous week, supported by safe haven demand as coronavirus fears continued to swirl. The PBOC announced over the weekend that they would be injecting 1.2 trillion yuan ($175 billion) into the Chinese economy via reverse repo operations (China’s preferred method to pump money into the economy). This is the most they have injected in a single hit for over a year, underscoring just how concerned they are over the potential impact of the coronavirus on the Chinese economy.
Coronavirus is expected to remain a key driver of demand for the dollar at the start of the new week as coronavirus keeps investors on edge.
US economic data will be in focus as well this week. Recent US data has been lukewarm. Investors will look to US manufacturing ISM figures later today.