The pound to US dollar interbank exchange rate strengthened this week, in part because YouGov’s MRP poll shows that the Conservatives may win a majority at next month’s UK election.
Turning to America, economic data this week largely exceeded expectations, while the US and China look on course to sign their “first phase” trade deal.
However, while upbeat reports like this would typically strengthen most currencies, the US dollar has weakened. This is because the USA’s economic strength and trade war progress has encouraged the world’s investors to sell the so-called greenback, in favour of “riskier” currencies.
The US dollar weakened this week, partly because President Donald Trump said that a “first phase” trade truce between the USA and China is in its “final throes”. As a result, it’s hoped that Mr. Trump and his Chinese counterpart Xi Jinping will sign the agreement soon. This may de-escalate the trade war, with the USA and China either cancelling some tariffs on each other, or at least not imposing new ones.
However, it’s useful to note that the US/China trade outlook may be complicated, because this week Mr. Trump signed the Senate’s law, condemning the abuse of human rights in Hong Kong. If China decides that this constitutes America meddling in its affairs, they may delay or cancel signing the “first phase” deal, which may affect the dollar.
In addition, another reason why the US dollar has lost value is because America’s economy unexpectedly grew by 2.1% in Q3, over the Summer, said official data this week. This is 0.2% above the previous estimate of 1.9%, so suggests that the US economy remains in comparatively fine fiddle, compared to industrialised counterparts like the UK, Eurozone or Japan.
However, as I mention, given that the USA is the backbone of the global economy, this upbeat news often encourages investors to sell the US dollar, in search of “riskier” assets elsewhere.
Turning to next week, the US dollar could be affected by the release of November’s Non-Farm Payroll (NFP) and unemployment rate, on Friday 6th December at 13.30 GMT. This measures the number of jobs that America created last month, and is forecast at 183,000 new roles, above October’s 128,000.
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