The US dollar looks set for more volatility ahead as economic data in both the US and China has taken a turn for the worse. Last Fridays’ US non-farm payroll numbers were extremely disappointing with just 20,000 new jobs being created in February. The numbers were 160,000 less than expected raising eyebrows in the US that there could be a sharp negative turn around in the US growth outlook. Whilst the numbers may not take into account the partial Government shutdown in January the markets are now starting to consider the prospect that the next interest rate move from the Fed could now be down rather than up.

Currency Pair% Change in 1 monthDifference on £200,000
GBPUSD4.0%$11,300

Although wage growth in the US has climbed to its highest level since 2009 which should eventually lead to higher inflation the worry is that the potential downturn could be so severe that the Fed may have no choice but to cut interest rates. Fears for the US economy are stemming in particular from a noticeable slowdown in China which is being exacerbated by the ongoing US China trade war. China last week saw a sharp fall in Chinese shipments which took a 20% dive which was much worse than the expected 5% decline. Much will now depend on whether a breakthrough in the US China trade negotiations can be found and whether China initiates a package of stimulus measures to try and kick start the Chinese economy.

Federal Reserve Interest rate decision this evening

USD Outlook Uncertain after Retail Sales

The US dollar received mixed signals following better than expected US retail sales data which rose 0.2% in January, considerably higher than the previous month. It wasn’t all good news though after the December figures were revised down to -1.6% as opposed to -1.2% from the last reading giving a less clear outlook and effectively cancelling out any gains that might have been seen.

The newly revised December figures represent the biggest drop in retail sales since September 2009 and tie in with the other economic concerns that a slowdown is starting to look likely.

Although the January numbers are welcome it doesn’t change the view at this stage that the US economy should see a sharp drop off in the first quarter of 2019.

US Consumer Price Index inflation data for February is released later today and could help shape policy at the Federal Reserve.

Rates for GBP to USD saw a jump higher yesterday on the back of a breakthrough for the Brexit deal that was agreed late last night. GBP USD could be volatile today as the detail of this latest deal is debated ahead of the meaningful vote in Parliament.

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