The pound to dollar exchange rate has seen a bumpy ride this week but has made considerable gains based on the performance of the US economy. Rates for GBP vs USD have slipped lower below 1.30 for the pair, and the dollar could strengthen further on the back of any further positive economic data releases. US services data produced by the Purchasing Managers Index arrived at a healthy 54.2 in January which has been received as welcome by the markets considering the recent long period of government shutdown.
Negative impact from US Government shutdown
Although it was a partial shutdown throughout January there is still inevitably going to be a negative impact on the US economy so the fact that the economic data continues to impress is a big boost for the US dollar. The US non-farm pay roll numbers last Friday highlight only too well the very strong labour market in the US in what has been challenging times with a Government shutdown. Despite the shutdown the US still managed to create 304,000 jobs last month.
Brexit news dominates pound to dollar rates
Brexit continues to drive the markets as meetings continue between EU and UK leaders. The stalemate continues over the controversial backstop and the EU are unwilling to reopen negotiations on the withdrawal agreement. As such the prospect of a no deal exit cannot be ruled out entirely which is keeping pressure on sterling exchange rates. The situation is unlikely to change any time soon following a meeting in Brussels yesterday between Prime Minster Theresa May and European Commission President Jean Claude Junker. There are unlikely to be any developments now until the end of February leaving an uncertain period ahead for pound to dollar rates.
US / China trade negotiations
The other big factor to consider when it comes to dollar exchange rates is what happens in the US / China trade negotiations. At the moment it is still uncertain whether a trade deal can be reached although some positive noised have been made in recent days. A meeting between Donald Trump and Xi Jinping is expected at the end of the month with Vietnam tipped as a possible location. Any signs a breakthrough should be seen as positive for the US dollar although the mood from China is difficult to gauge.
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