Sterling rates have remained very changeable this week affecting the value of the GBPUSD. This now sits close to the lowest level in 18 months and in my view is likely to fall further as we come to the end of the year. Over the last week, GBPUSD rates have swung lower by 2.5% compared to the high, 4.2% over the last month and nearly 6.5% over the last 60 days. Outside of the UK Brexit news, the USD has equally been growing in demand and therefore value for the simple reason that the US economy is a much stronger position. In Q3 of 2018 the US economy grew by 3.5% whereas in the UK it grew by only 0.6%. Interest rates have climbed in the US and now sit at 2.25% whereby the UK is at only 0.75%.
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Having said that, there are concerns that a contraction in global growth could be on the cards for the next 18 months. Following the recent connections in stocks globally and with commentary suggesting that the FED will not be raising interest rates as steeply next year, investors have become wary. Some are suggesting that the growth may now have peaked which is a topic to be aware of if you have a long-standing exposure to the US.
The US ‘yield curve’ is a topic to keep an eye on as it supports this theory. It highlights the difference between short term and long term US treasuries, if these inverse resulting in a higher return on shorter investments, it suggests confidence has wavered.
Earlier this week President Trump's former lawyer was sentenced to three years for multiple crimes include; lying to Congress, campaign financial violations and tax evasion. He told court that he "felt it was my duty to cover up his dirty deeds" talking about President Trump and allegations Russian meddling.
The story concerning President Trump and Russia connections could well now be re-visited and cause some volatility on the GBP USD rates as a result.
Nearer term we saw a slight contraction in US consumer spending on Wednesday for November, and yesterday Import/Export figures showed another contraction with Trade Wars being the reason for the drop. Yesterday’s news weakened the US slightly as the contraction was larger than expected. Today however most expect the USD to end the day more valuable following the release of the latest Industrial and Manufacturing data. This is expected to show a further expansion that I think will result in the USD continuing its gains as we end the week.
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