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Pound to Dollar Exchange Rates: GBP/USD Drops more than 1% as ?Greenback? Benefits from Slowing Chinese Economy

January 2, 2019 - Written by John Cameron

The Pound US Dollar (GBP/USD) exchange rate has plummeted over 1% today and is currently trading within the region of $1.2647, after China’s disappointing manufacturing data prompted renewed demand for safe-haven currencies.

The US Dollar (USD) ended 2018 at its strongest levels since 2015, following US President Donald Trump’s comment that he had a ‘very good call’ with China’s President Xi Jinping. Trump claimed the leaders had made ‘big progress’ during trade discussions, further weakening the Pound to US Dollar exchange rate.

The Pound (GBP) has also been feeling the pressure as investors remain cautious ahead of 9 January, when MPs are due to return to debate Brexit, with a vote on Prime Minister Theresa May’s UK-EU deal due the following week.

Pound (GBP) traders, meanwhile, were unmoved by Theresa May’s New Year’s Eve address in which she urged Parliament to back her Brexit deal, saying:

‘The Brexit deal I have negotiated delivers on the vote of the British people and in the next few weeks MPs will have an important decision to make. If Parliament backs a deal, Britain can turn a corner.’

Pound US Dollar (GBP/USD) Exchange Rate Drops Despite Positive Manufacturing Data

Today saw the release of the UK Markit Manufacturing PMI for December which showed a better than expected increase at 54.2 against November’s 53.6.

This, however, left the Pound markedly unmoved, with IHS Markit commenting that these ‘mainly reflected Brexit preparations by manufacturers and their clients.’

The Pound (GBP) was instead weakened by fresh criticism levied at Theresa May’s Brexit deal, with conservative MP, Sir Bill Cash, stating that it was his New Year’s resolution ‘not to vote for the PM’s Withdrawal Agreement this January.’

USD/GBP Exchange Rate Skyrockets despite Cautionary ‘Headwinds’ over US Economy

Heightened demand for safe-haven currencies supported the US Dollar today despite the publication of mixed US data.

The Redbook index came in at 0.6% (up from 0.1% in November) but the US Markit Manufacturing PMI for December showed 53.8 against November’s 53.9.

The ‘Greenback’ has benefited from signs of a slowing Chinese economy, however optimism in the US economy has also dimmed, with Gregory Daco, Chief US Economist at Oxford Economics, warning that the recent fall in the stock market is a reason for caution, commenting:

‘What really matters is how people perceive these headwinds - and right now markets and investors perceive them as leading us into a recessionary environment.’

The partial US Government shutdown has also had a slight dampening effect on US Dollar sentiment, with Donald Trump demanding funding for the Mexican border wall causing political gridlock. Trump tweeted:

‘For FAR TOO LONG Senate Democrats have been Obstructing more than 350 Nominations. These great Americans left their jobs to serve our Country, but can’t because Dems are blocking them, some for two years-historic record. Passed committees, but Schumer putting them on hold. Bad!’

GBP/USD Exchange Rate Outlook: Brexit Back in Spotlight

The GBP/USD exchange rate is likely to be driven by political forces rather than economic factors in the coming weeks, with Brexit debates to renew next week.

USD investors, meanwhile, will be looking forward to tomorrow’s slew of US ecostats, with the most important release being the ISM Manufacturing PMI for December, which is expected to decrease.

These will be followed by the release of the US Construction Spending figures for November which are expected to increase, potentially limiting any USD losses.

Tomorrow will also see the publication of the UK PMI Construction figures for December, with any signs of an ease in output potentially further weakening the GBP/USD exchange rate.

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