The pound US dollar exchange rate finished the previous week in positive territory as strong UK economic data pushed sterling higher. Meanwhile fears over the impact of hurricane Irma weighed on the dollar. The pound US dollar exchange rate pushed through US$1.32, before easing back at end the week to US$1.3196. This is only the second time that the pound US dollar exchange rate has crossed US$1.32 since September last year.
Pound investors digested a barrage of better than expected data on Friday, which helped sterling push higher against many of its major peers, including the US dollar. Included in the strong data was news that the UK trade balance (difference between exports and imports) unexpectedly shrunk in July from -£2.91 billion in June to - £ 2.87 billion. City analysts had anticipated that the balance would widen in July. Whilst the difference is not particularly notable, the fact that the deficit shrunk was enough to drive some investors towards the pound.
The other piece of significant data was that the National Institute of Economic and Social Research (NIESR) predicted an increase in the third quarter GDP from 0.2% to 0.4%. This is particularly important given the weak readings for economic growth that the UK has suffered over recent quarters. The good news was sufficient to drive the pound northwards into the weekend.
|Why does strong economic data boost a country’s currency?|
|Solid economic indicators point to a strong economy. Strong economies have strong currencies because institutions look to invest in countries where growth prospects are high. These institutions require local currency to invest in the country, thus increasing demand and pushing up the money’s worth. So, when a country or region has good economic news, the value of the currency tends to rise.|
There is no high impact UK data due on Monday, instead investors will watch for inflation figures on Tuesday to gauge whether the odds of an interest rate rise could be on the increases. A high inflation reading could encourage the Bank of England to consider hiking rates.
The US dollar has been under pressure from a range of factors over the past week. These include concerns over the damage caused by Hurricane Harvey and the expected damage from Hurricane Irma, which is unleashing itself on Florida at the time of writing.
Moving into the new week the dollar may find its losses capped as recent fears over North Korea eased slightly. Investors and the Trump administration alike were fearing that North Korea could launch a missile over the weekend during North Korea's 69th anniversary celebrations. Fortunately, the event passed without incidence allowing dollar traders to breathe a sigh of relief and start buying the dollar again.
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