Pound Under Pressure From Interest Rate and Brexit Concerns
While the chances of a Bank of England (BoE) interest rate cut tomorrow have been tempered by a recent run of firm data, they remain above 50% according to market analysts. This, coupled with fears of a no-deal Brexit, has exerted pressure on the pound to US dollar rate, causing it to slide below the 1.30 level for the first time in over a week yesterday. To make matters worse for the pair, the EU’s chief negotiator Michel Barnier fanned the no-deal flames on Monday by warning that there is still the risk of a cliff-edge Brexit at the end of the year.
US Durable Goods Orders Rebound More Than Expected in December
The pressure on the pound was exacerbated by a run of largely encouraging data releases for the US economy – and therefore the dollar – yesterday. Orders for US durable goods – products designed to last at least three years – rose higher than forecast in December following a sharp rise in spending on defence equipment. However, new orders for key US-made nondefense capital goods (excluding aircraft) posted their biggest drop in eight months, suggesting a further contraction in business investment in the last three months of 2019.
The data train got back on track thanks to the S&P Case-Shiller index, which revealed that home price gains continued to gather momentum in November. Prices increased 3.5% annually in November, up from 3.2% in October, according to the national home price Index. This was followed by news that US consumer confidence improved this month. According to the Conference Board, which is responsible for compiling the report, this was driven by a more positive assessment of the labour market and growing optimism about job prospects.
According to the CME FedWatch survey, there’s an 87% chance of “no change” in interest rates at the Federal Open Market Committee’s latest two-day meeting. This, combined with signals to that end from policymakers, means the market consensus is rates will remain on hold today.
Tomorrow’s highly anticipated BoE interest rate decision will have a huge influence over the performance of the pound v dollar rate. The outcome is currently balanced on a knife-edge, following a mixed bag of economic data in January. If the Bank believes the economy has perked up enough to leave them untouched, the pair could surge in value; if they vote to slash them, the pair is likely to head in the other direction.
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.