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Pound plummets as dollar rises in forex markets

The dollar continued to confound expectations as trading got underway on Monday.

The currency, which is facing what is likely to be the very first interest rate cut in several years on Wednesday, managed to stay afloat in the forex markets.

The dollar index, which is a tool used by traders to monitor how the American currency is performing compared to several others, was resting at 97.919. Late last week it managed to go over the 98 level, which was its highest point in eight weeks or so.

This is thought to be due in part to the fact that policymakers at the Federal Reserve do not appear to consider the American economy to be too far into the doldrums.

This offers some hope to traders of the dollar, who can take comfort in the fact that policymakers appear to be making their decision based on how to prevent future crises rather than having one to fight right now.

The Federal Reserve begins its meeting tomorrow (Tuesday), and will spend two days deliberating before moving ahead and publicising its decisions at 6pm on Wednesday.

In the run-up to the announcement there will be a number of data publications indicating the health of the US economy. However, the fundamentals used to make the decision are likely to already be largely in place and analysed.

However, not all currencies were able to be quite as fortunate as the dollar.

The British pound dipped by 0.3% over the course of early trading. This was due in large part to a new chapter in the ongoing Brexit wrangling.

Dominic Raab, a pro-Brexit minister who was recently appointed to the role of Foreign Secretary by new Prime Minister Boris Johnson, provoked worry after he told the European Union that it was the one who had to change positions in order for negotiations to advance.

He described the bloc as “stubborn” due to its continued statements indicating that it was against re-opening the deal-making process.

He also claimed that if the bloc continued to behave in this manner, the UK would have to go for the no-deal Brexit option – an outcome which the markets are concerned about.

In a further twist, Prime Minister Boris Johnson is believed to be considering the idea of holding a general election in order to break the deadlocked parliamentary arithmetic – adding to a wider feeling of instability.

In its pair with the US dollar, the pound went down to $1.2335, a position it has not seen in well over 24 months.

In the GBP/EUR pair, the pound was trading at £0.90, suggesting that there is fear about the outcome of Brexit across the currency markets.

The single European currency was stagnant in its pair against the US dollar. It rested at $1.11315 in the pair, close to its position of $1.1101 on Thursday, a two year low.

It continues to be plagued by the European Central Bank’s dovishness, as well as concerns over the health of the economy of its largest member state – Germany.

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