The US dollar interbank rate fell from its 2 year high against the pound from 1.2440, with the pound climbing back above 1.25. The dollar weakened following comments made by US Federal Reserve chairman Jerome Powell, speaking at the start of his two days in front of congress, he said ‘It appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US economic outlook. Seemingly suggesting the Fed is potentially still open to cutting rates.
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On the 31st July the Fed is due to announce any policy changes. Previous talk and expectations of rate cut had eased in recent days following last Fridays positive job data release in the US having supposedly eased pressure on the Fed needing to take any action. However, despite the strong jobs numbers posted Powell has again stressed that the Fed are ready to act.
Jerome Powells comments were followed on Wednesday by the release of the minutes from June’s Federal Reserve Policy Committee meeting.
Several members noted that a ‘near-term cut to the federal rate could help cushion the effects of possible future adverse shocks to the economy’ the minutes said. They also added that they generally agreed that downside risk to the outlook for the economic activity had risen materially since May’s meeting especially those associated with the ongoing trade negotiations and slowing economic growth abroad.
Despite there not being a strong case to cut rates at the last meeting the Fed may have growing concerns that a cut may be needed soon and are ready to act if necessary.
Considering at the start the of 2019 markets were suggesting one or 2 rate hikes for the year following the 8 made between 2016 and 2018, which has helped the US dollar remain strong, a cut will prove to be a turnaround if the Fed decide to cut rates just past the half way point for the year.
One man who will be pleased if the Fed cut rates will be President Trump, it’s no secret the President has been heavily critical of Fed and in particular its chairman Jerome Powell so a cut by the Fed would seem like another win for Trump. The Fed are finally taking on his views on how they should act despite the Feds independence from the US government.
If the Fed do cut rates there are signs it could affect the dollar. Although, with the UK still troubled by Brexit and with no end currently in sight, any gains could well be limited as despite the US and global slowdown the dollar will continue to be the worlds safe haven currency at times of uncertainties.
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