Pound Continues to Slip Lower Against the Dollar
The pound to US dollar rate ended last week on the backfoot, after briefly dipping below the 1.30 level on Friday. Already concerned about the Bank of England’s (BoE) interest rate outlook – which kept the possibility of cutting the cost of borrowing on the table in 2020 – the pair was left to digest the central bank’s second big announcement of the week. Mark Carney’s replacement as the governor of the BoE was revealed on Friday: Andrew Bailey, a BoE stalwart, will step into the role next month, creating further uncertainty about UK interest rates in the months ahead.
Interest rates weren’t the only factor weighing on the GBP vs USD pair. A sudden revival of no-deal Brexit fears, combined with dollar strength, also contributed to its downward spiral from a high of 1.34 on Monday. Boris Johnson’s suggestion earlier in the week that he would prevent the extension of the Brexit transition period, led to concerns that the upcoming negotiations could fail to deliver a comprehensive deal; a scenario that could leave the pound sterling to USD rate balancing on another cliff edge.
US-China Trade Doubts Boost Safe Haven Dollar
The US dollar took comfort in encouraging domestic data, before being boosted by lingering US-China trade uncertainty. Any hint of optimism that the trade war between the two superpowers can be resolved has the potential to make the safe haven dollar unappealing. Therefore, further stagnation in talks about a ‘phase one’ deal can have the opposite effect.
Britain took a huge stride towards leaving the EU when Parliament finally passed the Brexit withdrawal agreement on Friday. Mr Johnson’s reward for achieving such a thumping election majority also included an amendment outlawing an extension to the Brexit transition period. While this could still be revisited in the coming months, the pound will be hoping the UK government favours a soft Brexit agreement over splitting from the EU as soon as possible. The only UK data of note over the Christmas week is Friday’s UK finance mortgage approvals.
Will a raft of ecostats provide the US dollar with some festive cheer? Today sees the release of Durable Goods Orders, Nondefense Capital Goods Orders (excluding aircraft), New Home Sales and the Chicago Fed National Activity Index. On Thursday Initial Jobless Claims figures hit the headlines. Dollar investors will also continue to monitor developments in the US-China trade war, although the Christmas break means they probably shouldn’t hold their breath.
By Jonathan Watson
Source: Pound Sterling Forecast