US data raises odds of a hike in December

Traders now see odds of an interest rate hike by December rise to 47%, up from 35% last week.

Last week’s Non-farm payroll figures and employment data came in better than anticipated, putting to bed concerns regarding May’s abysmal non-farm payroll release.

Whilst the positive news is good for global markets, it could spell bad news for GBPUSD exchange rates.

US elections unlikely to help Pound to US Dollar rates

The main driver behind US Dollar strength recently has been the UK’s vote to leave the EU, during times of uncertainty investors pile into safe-haven currencies such as the US Dollar, Swiss Franc or Japanese Yen. Whilst the US elections, or any political event for that matter cause volatility in the markets, I am not expecting a sudden surge in exchange rates as we approach the US elections.

Donald Trump remains a controversial character, his recent backlash with the Khan’s, the family of a Muslim soldier who died fighting for America has strengthened Hillary Clinton’s campaign. It may already be too late for Trump to save his campaign, and given his inability to take advice from his fellow advisors, it’s quite plausible he might put further dents in his own campaign.

The latest polls put Clinton ahead of Trump by 7%, which if trends continue could strengthen the US Dollar as we approach November.

Clinton is seen as a safer option by investors, whilst she does have some skeletons in her own closet she has strong political experience which Trump lacks.

I do hold the view that even if Trump did retain some of his losses, it’s unlikely that GBPUSD exchange rates will recover significantly. The UK’s vote to leave the EU is of far more economic liability than Trump and I cannot see exchange rates recovering more than a couple of cents unless significant progress is made with Brexit negotiations which is very unlikely.

GBP/USD exchange rates could get worse

If US releases continue to bare positive I envisage rates to drop further, given that the UK will not begin talks with the EU until Article 50 is invoked next year, a FED hike prior to 2017 could have serious implications for exchange rates. A Fed hike before 2017 could see GBPUSD exchange rates fall to the low 1.20’s.

Before this becomes a possibility, economic releases for the UK could continue to worsen which may prompt the Bank of England to act again by cutting interest rates further. If you are hoping that the US election may help your currency exchange needs, I would consider what could happen in terms of economic releases and Brexit news within the next 3 months.

It is therefore my opinion that getting in touch with us today could save you financially, today’s economic releases for the UK could further worsen your position, talking through your requirements with our brokers may put your mind at ease, we are open until 6pm to happily discuss your options with you.

Do you need to buy US Dollars? Get in touch with our brokers today to talk through your requirements, call us on 01494 725 353.

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