US Dollar bolstered by domestic housing market

The US Dollar fought back against the Pound yesterday afternoon with some strong housing market data. The National Association of Home Builders released data on the current state and future projections for the housing market. The positive outlook reversed some of the gains made by Sterling in the morning.

We will likely see the USD strengthen further this morning off the back of further housing data to be released at 13:30 GMT. The amount of first buyers and building permits will be released. Due to the already positive market outlook released yesterday, and people scrambling to buy and build projects before interest rates rise, I am confident there will be further confidence imbued in the Dollar today. A boost below the 1.55 mark for GBP/USD is possible.

Strong USD’s global effect

The effects of a prolonged run of a strong Dollar on global markets is beginning to become telling. As the most widely used currency in the world, large shares of global stocks are denominated in Dollars. The knock-on effect is that when companies have to pay dividends to their shareholders, this is becoming more expensive. Currency movements deducted 12 percentage points from the growth rate in dividends – amounting to $52bn being withheld from global circulation.

The point is that the decision to raise rates for the US is much more complicated than the UK. Weak global growth shown by the devaluation of the Chinese Yuan and the distortion to the world markets by a strong Dollar mean that the FED have many more hesitancies than the Bank of England do.

Those with Dollars to sell in the next month should not bank on a rate rise to boost the Dollar’s value further in their favour. Markets are expecting a rate rise in September, so the rates are already priced in. If this does not come to pass, then I would not be surprised to see 1.60 on GBP/USD rates. I recommend taking advantage of any movements in your favour today.

Thank you for taking the time to read my US Dollar exchange rate forecast, I hope you found it informative. If you have any queries and would like to discuss anything in this report, or you are looking to exchange US Dollars, please contact me at jjp@currencies.co.uk or call me on +44(0) 1494 725353.

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