Disappointing data weighs on pound
Brexit uncertainty and soft economic data combined to send the pound to US dollar rate into a downward spiral at the end of last week; dropping from 1.32 on Tuesday to 1.30 on Friday. Fresh fears of a no-deal scenario plagued the pound throughout the Christmas period, so when UK Manufacturing Purchasing Managers’ Index fell to its lowest since July 2012, the GBP vs USD pair’s value fell with it.
Fed officials confident in 2020 interest rate path
Escalating tensions in the Middle East gave the US dollar an injection of strength in the second half of last week, with investors flocking back to the safe-haven currency. However, it took a knock on Friday afternoon, when it was revealed that the US manufacturing sector contracted at a stronger pace than expected in December. The Institute for Supply Management’s Purchasing Manager’s Index dropped to 47.2 from 48.1 in November; its lowest reading since June 2009, falling short of analysts’ estimate of 49. While the US-China trade war kept a lid on factory output, orders and employment, Donald Trump’s announcement that both sides will sign a “phase on” trade deal on 15th January could limit a further downturn.
Fed policymakers were in a confident mood during the latest Federal Open Market Committee meeting. They agreed that interest rates were likely to stay on hold “for a time”, noting that global economic risks had reduced, and the US labour market could improve further. This monetary policy optimism supported the central bank’s intention to leave rates at 1.5% to 1.75% throughout 2020. Fed officials chose to keep interest rates steady at their final meeting of 2019, following three consecutive cuts.
MPs return to work today, with investors in the pound craving clarity over the UK’s future relationship with the EU, after fears of a no-deal Brexit resurfaced just before Parliament broke up for Christmas recess.
The highlight for economic data out today from the UK is the Markit Services PMI. This morning, December’s figure was released at 50 vs a consensus of 49.2, (any reading above 50 signals expansion) offering support to the GBP. Over in the US, Markit Services PMI will be closely monitored by investors in the dollar and is released at 14:45 GMT.
Other influential data releases this week include the US ISM Non-Manufacturing PMI on Tuesday, the British Retail Sales Consortium measure on Thursday and US Nonfarm Payroll figures on Friday.
If you would like to learn more about factors influencing GBP/USD exchange rates for an upcoming currency transfer, feel free to contact myself, Jonathan Watson, using the form below.