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Brexit Jitters and Data Help Safe Haven US Dollar to Firm Versus Pound

Last week’s high: $1.3211

Last week’s low: $1.3054

 

Weak UK Data and Rise in US Jobs Rounds off Bearish Week for GBP/USD

For most of the past week, investors sold the Pound as fears of a possible no-deal Brexit returned and the British currency fell from its best levels after surging in the middle of January.

UK Parliament voted for the government to attempt to renegotiate the controversial Irish backstop issue, but the EU has indicated its stance will not change. As there is now under two months left before the formal Brexit date on 29 of March, investors are anxious that time will run out and lead to a no-deal scenario.

With political jitters afflicting the Pound, investors opted to buy less risky currencies like the safe haven US Dollar.

This caused the Pound to US Dollar exchange rate to fall for most of the week, and Friday’s UK and US data prevented the pair from seeing a late-week recovery.

Britain’s January manufacturing PMI from Markit fell short of expectations, and analysts were concerned it pointed towards a recession for the UK manufacturing sector. This left the Pound unable to recover much from weekly lows.

The US Dollar, on the other, hand, benefitted from Friday’s Non-Farm Payroll report which revealed that a whopping 304k new jobs were created in January.

 

USD Outlook: US Data and Bank of England News may take Backseat to Political Developments

In the first half of next week, some influential US data will be published including factory orders from November on Monday and ISM’s non-manufacturing PMI on Tuesday.

If these stats beat expectations, they could make the US Dollar more appealing. However, unless they are surprising they are unlikely to be particularly influential for the Pound to US Dollar exchange rate.

Instead, investors are more likely to focus on political developments.

Any surprising Brexit news, such as signs that the UK-EU withdrawal deal could see stronger domestic support, or the possibility that the Brexit date will be delayed, would likely make the Pound more appealing.

The US Dollar, on the other hand, will be influenced by shifts in global safe haven demand. US-China trade developments could make investors more willing to take risks, which would make the US Dollar less appealing.

 

Key Events

4th February

09:30 UK Construction PMI

15:00 US Factory Orders

5th February

09:30 UK Services and Composite PMI

15:00 US Non-Manufacturing PMI

6th February

13:30 US Trade Balance

7th February

12:00 Bank of England (BoE) Policy Decision

13:30 US Jobless Claims

 

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To keep up to date with the US Dollar, visit the USD blog in our Currency News section.

Alastair Archbold

Foreign Exchange Manager

aja@fcgworld.co.uk

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