The US Dollar has continued to be the main beneficiary following the global financial uncertainty presently in the market; traders have moved funds into the USD following the UK’s decision to leave the EU and problems elsewhere in the world including Japan. Buying the US Dollar is now the most expensive it has been for nearly 30 years and I am afraid to say that I don’t expect this to improve in the near term. The UK economy is in significant difficult following the vote to leave the EU, not that the economy is doing badly as it is proudly the 6th largest economy in the world, it is more with regards to the economic slowdown expected.
The contraction in economic activity due to the fall-out of the referendum has resulted in a cut in growth expectations, therefore demand and in turn its value has been falling.
The US economy in contrast has been improving, jobless figures in particular have seen continual gains through the year overall. As a result of the US being in a period of growth and prosperity whereas the UK economy is contracting, the argument stands that the GBP/USD pairing is likely to continue to be under pressure.
Rates of exchange do not move in a straight line and timing a transfer can still make a significant difference in the cost of any purchase. Economic data this week includes labour information this afternoon, which is expected to continue in a positive direction making buying the US Dollar more expensive. We have mortgage figures on Wednesday which are potentially going to be steady when compared to last month and export figures on Friday which again are likely to show further gains.
With the UK pound expected to also remain under pressure this week I am personally of a view that prices at the beginning of the week will be better than the end for GBPUSD buyers.
The elections in the US are likely to grab further headlines as we get closer to the vote in November. In the short term I think however it will have little impact on the price of buying the USD, instead it will be a lot closer to the event perhaps from the end of September. It will then be the uncertainty with regards to their economic future which could have a negative impact on the USD making it cheaper to buy, especially if Trump takes the lead with him widely thought as the wild card.
The leadership campaign is also probably having an impact on the Federal Reserve and their plans on further interest rate hikes. It seems a fair assumption that they will now wait until clarity has been given around the commander in chief before further central policy is changed and a hike is announced. Again, who exactly wins the race could well result in a very different strategy for the FED being introduced.
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