Sterling weakened versus the US dollar this week as America’s economy continues to defy concerns of a slowdown, while the greenback was also affected by a US/Iran military skirmish.
The Institute of Supply Management’s (ISM) closely-watched US non-manufacturing survey reached 55.0 in December, according to fresh statistics this week. This is above forecasts for 54.5, November’s result of 53.9, and beyond the 50.0 figure that indicate growth.
This points to continuing economic momentum in America’s services industry, the largest part of the US economy, even though the USA’s Gross Domestic Product (GDP) expansion is now the longest in the country’s history. In particular, ISM’s employment sub-index revealed that businesses continue to contract new workers at a healthy pace, pointing to ongoing economic growth in future, and benefiting the US dollar.
The US dollar has also strengthened this week, as the United States and Iran were involved in a military skirmish. Last Friday, America announced that it had killed Iran’s General Qasem Soleimani, and this week Iran responded by striking two US military bases in Iraq.
This lifted the US dollar, as the financial markets sought refuge in the so-called “safe haven” US dollar, even though America was one of the combatants. This means that, in times of geopolitical uncertainty, investors buy American assets, as the world’s largest economies. However, the conflict has de-escalated since then, particularly as Iran’s military strikes didn’t kill any US personnel.
Today we’ll learn December’s closely-watched Non-Farm Payroll, which measures the number of non-agricultural jobs created in the United States last month. This is forecast at 161,000, below November’s bumper 266,000, while the unemployment rate is predicted to remain steady at 3.5%. Figures above or below these forecasts may influence the USD.
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