Yesterday the US released their latest Durable Goods orders and the figure exceeded expectation by 3.3%. Durable goods orders are important for the US economy as it gives a good indication to large investments being placed in the US. Next Friday the US will release their latest Non-Farm payroll numbers and Unemployment figures. These two data releases will have an impact on the Federal Reserve decision to raise interest rates on the 14th December.
Economic data in recent months has supported a rate hike however I believe the FED sat on the fence and kept rates on hold at 0.5% because they wanted to see who became President and how the decision impacted the market. This theory is supported by President- elect Donald Trump, he heavily criticised Chairlady Janet Yellen as he felt that the FED should be independent and not be influence by political factors. With the Dollar remaining strong, as long as Non-Farm payroll numbers and Unemployment figures do not disappoint, I wouldn’t be surprised to see the FED raise interest rates next month.
If an interest rate hike materialises in December, past history tells us speculators flock to the US dollar in order to make gains from their investments. Theoretically this should mean the Dollar will strengthen against sterling. Couple this with Brexit news in the upcoming months and the probability that the UK will leave the EU and single market I wouldn’t be surprised to see Pound to US Dollar break through 1.20 and into the teens in the upcoming months.
For US Dollar buyers in the next 3 months, it may be worth taking advantage of present rates of exchange. If you are waiting for your sterling to become available an option is to lock into a forward contact. This is where you pay a small deposit now and the remainder in the future.
With the case for the FED to hike rates at an all time high in December, Clients buying or selling the US Dollar may be prudent to get in touch with our brokers. You can call us on 01494 725 353 or email me here for further information.
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