Sterling reached its highest levels against the dollar so far in 2019 yesterday after the news that a delay in Brexit was looking likely, coupled with a dovish outlook on monetary policy from Federal Reserve Bank chairman, Jerome Powell.
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The Fed raised rates four times during 2018 and there was an anticipation that they would continue to rise at an aggressive pace in 2019 which kept the USD strong against the pound and the majority of other major currencies.
Since January however, Powell and the Fed have softened their stance on rate hikes, insisting on a more patient approach to help in navigating the current global uncertainty, whilst maintaining that economic growth and the job market in 2019 will remain strong. This should be viewed a positive news for those buying dollars, as despite Brexit uncertainty in the UK, the pound could still hold firm against the dollar if the Fed maintain a more cautious stance.
That being said, there is still plenty more room for sterling to drop depending on how Brexit plays out, so those holding out for further gains may be sensible to take advantage of spikes in the market when they present themselves.
Looking ahead this week and tomorrow after will see the release of Q4 GDP figures for 2018, the timing of which has been delayed owing to the recent US Government shutdown. Jobs market numbers will be released at the same time and both these data sets will be analysed carefully ahead of any monetary policy decision or statement from the Fed. These look set to disappoint owing to trade tensions between the US and China and global uncertainty, which could therefore weigh on the dollar’s value towards the end of this week.
In more positive news regarding the US, it seems as though trade tensions with China are starting to subside somewhat, with US and Chinese negotiators meeting in Washington through the weekend to work towards a deal that would end the tariff battle that has been going on for almost a year. Trump stated earlier this week that their negotiators were ‘very, very close’ to agreeing a deal which could have a major impact on the market.
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