As has been the way since the Brexit vote in June 2016, the greenback has been relentless in sensing weakness in the Pound, yesterday forcing sterling to surrender its gains from Tuesday by almost 1.2%. US Dollar buyers would have been comforted to see that the greenback faced resistance in the mid-1.22 range however I am not convinced this opportunity will be around for long.
Even though Donald Trump's inauguration is just moments away, the main drivers for GBP/USD rates at the moment remain the politically charged news outbreaks surrounding Brexit. Like with most of its other major currency counterparts, Sterling had to withstand a fair amount of pressure from the greenback as investors continued to question Theresa May's plan for a clean break from the single market. The main fear being there is still a large amount of downside risk to be accounted for with serious concerns being raised over the PMs overly ambitious time frame for the negotiations to take place.
Fitch is the latest ratings agency to confirm it will consider devaluing Britain's credit rating should the uncertainty surrounding Brexit continue.
As a result, I can see the next couple of days being worryingly volatile for cable rates and would recommend anyone with a short term dollar requirement to get in touch with their account manager who can help limit their exposure.
Although the US Dollar has continued to thrive since Donald Trumps surprise election back in November, annalists are beginning to question the feasibility of some of the policies promised by the president to be as he edges towards taking full control this Friday. Yesterday, Robert Kaplan, president of the Dallas Federal Reserve Bank raised his concerns over the sustainability of the countrys already high public debt, currently representing 76% of the US GDP. We have already seen how quickly the markets jump following Trumps impulsive reactions and although he has already been seen to act on some his promises, his calls for structural reforms over corporate tax and increasing government spending in a bid to make America great again may well put the value of the green back under pressure later on in the year.
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