Last week was one to forget for the pound to US dollar rate. The pair began last Monday morning above the 1.31 level before nosediving to 1.28 by Friday afternoon, as Brexit concerns intensified. Even an upbeat survey on Friday, which revealed UK retailers experienced their highest sales levels in six years last month, couldn’t raise its spirits.
Boris Johnson isn’t just struggling to convince the public that he can avoid a no-deal Brexit at the end of the year – a BMG poll suggests that just 40% of people believe he will strike a free trade deal with the EU by his self-imposed 31 December deadline – investors in the pound also seem unsure. The resulting market uncertainty caused the GBP vs USD rate to tumble for three consecutive days, before closing out the week at its lowest level since late November.
Pound weakness was compounded by dollar strength last week. Confidence in the global economic outlook continued to be dampened by the coronavirus outbreak, raising the appeal of the safe-haven dollar throughout last week. The currency was given a further boost on Friday by the latest non-farm payrolls figure, which surged to 225,000 for the month, well above forecasts. According to the US Bureau of Labor Statistics – the department responsible for compiling the report – an unseasonably mild January helped to drive the US jobs market forward.
The jobs report also revealed that the unemployment rate rose to 3.6%. This wasn’t all doom and gloom, however, as the labour force participation rate increased to 63.4%, equalling its highest level since June 2013. While average hourly earnings rose 3.1% over a year ago to $28.44, outstripping estimates.
Tomorrow sees the release of the December GDP figures. This represents the final piece of the fourth quarter 2019 puzzle, which has disappointed so far. Forecasts suggest the UK economy will post a 0.2% increase for December, leaving GDP unchanged for the final quarter; a result that would mark a weak finish to an uninspiring year.
The dollar must wait until Thursday for the first economic release of note when the Consumer Price Index (excluding food and energy) hits the headlines; a key indicator to measure inflation and changes in purchasing trends.