One of the main factors that has led to a strong U.S dollar over the past few years has been consistent interest rate hikes over a sustained period of time.
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When an interest rate rises it more often than not leads to the currency associated with it rising in value as it makes that currency more attractive to investors.
It does appear that the Federal Reserve Bank (Fed) is having to slow down the pace of hikes, expectations are for the interest rate to remain on hold tonight, however the pound to dollar exchange rate could move this evening.
The reason we may still see movement is that on top of the interest rate we are also expecting to get an inkling as to what the plans are for the rest of the year. All 17 members of the Fed also take part in what is known as the ‘dot plot’ where they provide an anonymous forecast of where interest rates will go over the course of the year and this gives a good idea as to how the Fed are thinking as a whole.
With the currency markets moving on speculation as well as fact this data will be key, is the consensuses is that analysts do not see any further rate hikes this year then there is a chance the dollar may weaken the markets try to second guess the next currency that could come into fashion.
A report yesterday suggested that the current Trade Wars between Donald trump and China have already hit the U.S economy by $7.8 Billion and that if left to continue could eventually hit the U.S economy by $1 trillion dollars over the next ten years.
The National Bureau of Economic Research suggested the current price that has been paid, and the Chambers of Commerce also commented on the future costs of the trade war continuing and should tariffs increase.
The latest report suggested that a prolonged trade war would hit Growth figures, employment and investment whilst making export and import prices rise. This could lead to U.S products being less competitive overseas and would equally make products for American Consumers from abroad more expensive. This also suggests that if the trade wars continue to move along without a resolution then this could start to weigh heavily on the dollar, making it weaker but equally should there be significant progress towards a deal being made then the dollar would be likely to strengthen.
It does seem like the two parties are still fairly wide apart at this stage so this report added to the potential of interest rate hikes remaining stagnant in the U.S does make you wonder if the dollar will remain as strong as it is for long?
To contact one of our experienced brokers to discuss dollar exchange rates feel free to call our trading floor on 01494 725353.
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