The British pound was little changed against the US dollar on Thursday, as markets awaited the outcome of the Thanksgiving holiday and the start of the Black Friday shopping season in the US.
The US dollar index, which measures the greenback against a basket of six major currencies, was down 0.1% at 96.23, after hitting a 16-month high of 97.69 on Tuesday. The dollar was pressured by a sharp drop in US Treasury yields, as investors sought safe-haven assets amid rising concerns over the global economic outlook and trade tensions.
The US bond market was closed on Thursday for the Thanksgiving holiday, and will have a shortened session on Friday. The holiday also reduced the liquidity and volatility in the currency market, as many traders took a break from the action.
The pound, meanwhile, was trading at $1.2875, slightly higher than the $1.2860 level it reached on Wednesday. The pound was supported by some positive Brexit news, as the European Union and Britain agreed on a draft political declaration that outlined their future relationship after the UK leaves the bloc.
The declaration, which will be formally endorsed by EU leaders at a summit on Sunday, covered areas such as trade, security, and fisheries. It also stated that both sides would work towards a free trade agreement that would ensure “no tariffs, fees, charges or quantitative restrictions across all sectors”.
Black Friday Expectations for US Retailers
The currency market will also be watching the Black Friday sales figures, which will provide a glimpse into the health of the US consumer sector and the overall economy. Black Friday, the day after Thanksgiving, is traditionally the busiest shopping day of the year in the US, as retailers offer steep discounts and promotions to lure customers.
According to a survey by the National Retail Federation, about 164 million Americans plan to shop over the Thanksgiving weekend, with 71% of them expected to shop on Black Friday. The survey also found that consumers plan to spend an average of $1,007.24 during the holiday season, up 4.1% from last year.
The Black Friday sales data will be closely monitored by the Federal Reserve, which is widely expected to raise interest rates for the fourth time this year in December. The Fed has been gradually tightening its monetary policy to prevent the economy from overheating, as the unemployment rate remains near a 49-year low and inflation is close to the Fed’s 2% target.
However, some Fed officials have recently expressed caution about the pace of rate hikes, citing the risks posed by trade disputes, slowing global growth, and fading fiscal stimulus. The Fed will release the minutes of its November meeting on Thursday, which could offer more clues on its policy outlook.
Outlook for the Pound-Dollar Pair
The pound-dollar pair, also known as cable, has been trading in a narrow range of $1.27-$1.32 since mid-October, as Brexit uncertainty and Fed policy expectations have offset each other. The pair is likely to remain choppy until there is more clarity on the Brexit deal and its approval by the UK parliament, which is expected to vote on it in early December.
The pound faces a downside risk if the deal is rejected by lawmakers, which could increase the chances of a no-deal Brexit or a general election. The dollar, on the other hand, could benefit from a safe-haven demand if the global economic outlook worsens or the trade tensions escalate.
However, the pound could also find some support from the Bank of England, which has signaled that it would raise interest rates gradually and limitedly if the Brexit transition is smooth and the economy remains resilient. The dollar, meanwhile, could face some headwinds from a dovish Fed, which could pause its rate hike cycle next year if the US economy shows signs of slowing down.
