The pound fell against the US dollar to the lowest level seen since 3rd January yesterday, with the interbank rate reaching lows of 1.25888. However, this wasn’t just due to sterling weakness, after Labour leader Jeremy Corbyn suggested further concerns over a No Deal Brexit, but from further positive signs for the US economy from its latest economic data releases.
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US Gross Domestic Product (GDP) figures for the first quarter of this year were released at 3.1%, as had been expected, but slightly lower than the 3.2% posted in the previous quarter. Continuing Jobless Claims were better than than previous figures, showing fewer US citizens filing for ongoing unemployment benefits, and Pending Home Sales also came in better than anticipated.
The US dollar has so far benefitted from recent global trade tensions between the US and China, as investors have been holding their funds in the safe haven US dollar, despite markets predicting around two cuts to US interest rates by January 2020. Tensions were heightened further yesterday after Chinese Vice Foreign Minister Zhang Hanhui said ‘we oppose a trade war but are not afraid of a trade war. This kind of deliberately provoking trade disputes is naked economic terrorism, economic chauvinism, economic bullying.' Chinese President Xi Jinping will meet with Russian President Vladimir Putin next week which could cause the trade war to escalate even further.
There have been suggestions of China using its exports of rare earths as leverage in the trade war is likely to encourage retaliation from the Trump administration.
This afternoon, Inflation data in the form of Core Personal Consumption Expenditure Index will be released for May, and is expected to show an improvement month on month from 0% to 0.2%. Personal Spending data is also released at 12.30 and is expected to fall, so we could expect swings on US dollar exchange rates throughout tomorrow. The next key data release will be on Monday when Manufacturing PMI (Purchasing Managers Index) will be published for May and is also expected to rise. Clients looking to purchase US dollars with pounds may look to trade sooner rather than later in case the dollar continues to strengthen.
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