On 8th November, we saw Donald Trump elected as the 45th President of the United States. With both houses of congress in Republican hands, (a feat only achieved by the Republican Party for a total of 4 years since 1945) it gives the President greater power in pushing through policies. His promise of tax cuts and frankly outlandish fiscal stimulus plans saw the price of a number of airline stocks and commodities surge such as copper which touched its highest level since July 2015.
President Trump has openly stated he ‘believes the US Dollar to be overvalued’ and a burden to exporters. However, I firmly believe the loose fiscal and tight monetary policies President Trump plans to invoke show strong similarities to the early part of Ronald Reagan’s presidency when he embarked on a ‘spending spree’ at the same time the then head of the Federal Reserve Paul Volcker declared his ‘war on inflation’ by increasing interest rates.
During this period, we saw an uncomfortably strong US Dollar with GBP/USD plummeting from 2.4 to 1.05 between 1981 and 1985. As Trumps policies become clearer will we see these levels again soon? If we do it could mean a $200,000 transfer costs you an extra £29,000.
If you have a US Dollar currency requirement in the upcoming months it may be wise to take advantage of the current GBP/USD levels seen by the use of a forward contract, contact your broker here at Foreign Currency Direct to learn more about the variety of options available to you.
This week promises to have the potential of a volatile period for US Dollar exchange rates with a multitude of influential economic data releases. On Tuesday at 3pm the head of the Federal Reserve, Janet Yellen will speak, any indications of future interest rate rises will drive speculation and strengthen the US Dollar as further expectations are priced into the currency market.
Wednesday sees Retail Sales (a widely-followed indicator of consumer confidence and spending) previously at 0.6% and Consumer Price Index (a key indicator to measure inflation) previously at 2.1% for January released at 1:30pm. Later at 2:15pm we see Capacity Utilisation for January released and a second speech from Fed Charwoman Janet Yellen. Thursday at 1:30pm Initial and Continuing Jobless Claims are released giving an insight into the strength of the American labour market.
Significant deviations from previous levels or market expectations has the potential to drive the markets in either direction. It is worth detailing any currency requirements you may have to your experienced personal broker here at Foreign Currency Direct who can help you to plan ahead and swiftly take advantage of any spikes that may occur in the market.
Whilst I believe economic data will be the fundamental driver of the US Dollar this week, you can never discount Donald. We now live and work in a new age where outlandish comments from his Twitter account can have immediate and drastic effects on potential trade deal relationships and thus exchange rates.
So. get in touch with your dedicated broker on 01494 725 353 if you have an upcoming US Dollar requirement, whilst there are reasons to believe US Dollar strength will emerge in the weeks ahead, one outrageous tweet from Donald Trump could shake investor confidence.
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