With the uncertainty that surrounds Europe and the UK at the moment, the USD has arguably been the greatest benefactor and has strengthened significantly against GBP and EUR over the past month as investors look for a safe haven to invest their currency. So far this month the dollar has increased by 2.5% against the pound, resulting in a difference of £3,854 on a purchase of $200,000.
|Currency Pair||% Change in 30 days||Difference on £200,000|
The global uncertainty has been added to in recent days as a result of rising tensions between the US and Russia. Firstly Trump threatened to pull out of a treaty with Russia that was signed at the end of the Cold War as a nuclear arms agreement between the two nations. There are also upcoming congressional elections in the US, otherwise known as mid-terms, where Democrats and Republicans fight for greater control in Congress which can lead to more power in passing bills through Congress. After all of the alleged Russian tampering in the last Presidential election, the US have launched a campaign against Russia in an attempt to avoid any misguided information or ‘fake news’ being released that could affect the elections. If tensions between the US and Russia continue to grow we are likely to see a fall out in exchange rate movement, which could benefit the USD as investors look to keep their funds in safe haven currencies.
As a result of the cocktail of Geopolitical risks at present, including the trade war between China and the US and the rejection of Italy’s budget proposal, we have seen the Dow Jones and FTSE 100 drop dramatically this week. These market jitters look set to continue longer term.
In recent weeks President Trump has been claiming that the US currently have the best economy they’ve had in their history. It has been performing well of late, so it will be interesting to see if this is backed up in the Fed Beige book report this evening, which gives a general overview of how the economy is performing. If Trump's bold claims are echoed then there is the potential for further US dollar strength. There are also jobless claims figures released tomorrow, which give an overview of how many individuals filed for unemployment in a specific time period. This often has the potential to impact USD rates as a strong labour market is often linked to a rise in interest rates.
Economic data is fairly light for the rest of this week from the US and UK, so it is likely to be Brexit and political developments that have the biggest impact on GBP/USD rates for the remainder of the week.
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