The pound to US dollar exchange rate dipped by around 0.5 percent today (Image: Getty)
Mark Gregory, UK Chief Economist at Ernst & Young, warned: “There may be some improvements in the economy, but it’s not time to pop the champagne yet. There are still significant unknowns – about the trade deal around Brexit, and the wider policy agenda of government.” Due to the double threat of both an interest rate cut and possible no-deal Brexit following the UK’s exit from the European Union (EU) on Friday, markets have remained wary of the pound.
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In UK economic news, today saw the CBI retail sales report for January flat line at 0 percent, with the persistent weakness in Britain’s retail sector placing further pressure on the BoE to slash interest rates this week.
Anna Leach, CBI Deputy Chief Economist, was downbeat in her analysis, saying: “2020 looks set to be another tough year for the sector as growth in households’ disposable income is set to remain modest and retailers continue to battle longer-term issues such as digital disruption and the cumulative burden of policy costs.”
Meanwhile, the US dollar has continued to benefit from its safe-haven status as the ongoing crisis over China’s coronavirus outbreak has left markets in a risk-off mood.
Today’s US durable goods orders report for December showed a rebound of 2.4 percent after falling by -3.1 percent in the month prior.
This has provided a boost to the US dollar as increased US production activity bodes well for the economy.
Ian Shepherdson, Chief Economist at Pantheon Macroeconomics, was notably dovish in his analysis, however, commenting: “The jump in the headline hides much weaker details.”
“The monthly numbers are noisy, though, and the trend is drifting down slowly, much less bad than the rollover implied by business surveys.
This story seems unlikely to change much in the near future.”
Looking ahead, the pound to US dollar exchange rate will be driven by speculation over the BoE’s rate decision on Thursday, with any further hints that the central bank could cut its current 0.75 percent rate proving pound-negative on a downcast UK economic outlook.