US Dollar strength likely to persist

With the Presidential election now out of the way all eyes are squarely focused on the US Interest rate decision next month. There is now perhaps over a 90% chance of a US Interest rate hike in December which should ensure the US dollar retains its current strong performance. With Donald Trump not actually sworn into the White House until January 20th 2017 we have some time to prepare and assess his impact as President. So far markets have taken well to Donald Trump, stock markets have risen and investors appear confident of a rate hike next month.

News reports this weekend suggest a recount of the votes in Wisconsin initiated by a green party candidate are unlikely to unsettle the President-Elect, he has responded in typical fashion by calling it a scam!

Important news this week that clients looking to buy or sell the US dollar should be aware of are US GDP (Gross Domestic Product) tomorrow and then Non-Farm Payroll data on Friday afternoon. US Employment data is crucial to the Federal Reserve’s decision to raise interest rates. A good reading should confirm a hike for next month, a poor one would raise questions. These are the key events this week, Wednesday afternoon could also see volatility on GBP/USD rates as it is the end of November and investors may be moving funds in and out of the US Dollar to close off any monthly positions. This can see some large unexpected movements on GBP/USD but also other currencies so make sure you have highlighted any transfers to your account manager here in advance.

What can we expect next for Pound to US Dollar exchange rates?

With markets pricing in such a strong chance of the US raising interest rates further US dollar strength would perhaps be limited if the Fed do hike on 14th December. The real surprise would be if they opted to hold fire, this would see the US dollar weaken as investors sold off US dollar positions. GBP/USD remains at elevated levels following Donald Trump’s victory which has lent support to the GBP/USD rate. Speculation Trump would look favourably on the UK in any deals has helped the pound rise as markets focus attention elsewhere. Pound to US Dollar rates seem likely to remain above 1.20 for now but could begin to retest this important level as Pound strength wanes and the US Dollar once again gains strength.

On balance I would suggest buyers of the US dollar should move sooner or on any spikes as the outlook looks set to continue to look kindly on those selling US dollars for pounds. Call our trading floor or email me here if youd like to talk through your US Dollar needs.

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