With a speech from Federal Reserve speaker Bostic this afternoon at 13:00, the UK interest rate decision and the EU summit all taking place this week, it's likely we will see some GBPUSD volatility. The table below shows the difference in USD you could have achieved when buying £200,000.00 during the high and low points for the past month.
|Currency Pair||% Change||Difference on £200,000|
Jerome Powell’s first interest rate meeting seems more than likely to see a further hike in US interest rates. This is the key piece of data this week from the United States Federal Reserve who will meet to decide on interest rates, giving their decision at 7pm Wednesday evening.
With the hike already assumed the market will be closely looking for clues as to further hikes this year, with at least 2 and maybe 3 more on the horizon. Future hikes for 2019 will be assessed, markets felt 2019 may only have 2 as the Fed reached the end of the rate hike cycle. Recent hints suggest it could be 3, such a confirmation would likely see the US Dollar stronger.
Whilst there is definitely scope for a stronger dollar, any surprise caution by the new Chairman of the Fed could see a much weaker US dollar. Raising interest rates does come at a cost and recent concerns over US Wage growth and Trade Wars may possibly cause the Fed to adopt some caution among the overall positive view of the US Economy.
GBPUSD rates have been quite volatile in 2018 trading in a wide range of nearly 10 cents. This is partly explained by the behaviour of the US dollar which as a global safe haven currency will move not just on domestic news in the US, but also news worldwide.
In times of uncertainty the US dollar will strengthen, this was seen around previous concerns of a stock market correction in February. This story could easily resurface in the future as markets don’t just continue in one direction forever. Whilst unlikely to manifest this week, the signals from the US economy are that it will keep growing. This is storing up problems for another day.
Trump tax cuts and rising economic growth has all seen Inflation jump, hence the need for further hikes for a longer period of time. Any concerns over a crash could see the US dollar rising. Paradoxically, the fears over a Trade War recently saw the US dollar losing value. This was because historically protectionist policies actually do more harm than good to the economy. Markets became fearful the Trade Wars might lessen the pace of interest hikes.
Today is a speech by member of the Federal Reserve at 1pm, I think this will be largely overshadowed by Wednesday evening where the interest rate decision and Press Conference is the main news. GBPUSD might struggle to rise above 1.40 if the Fed is overly positive. However, any strength of the dollar or dip in GBPUSD should be seen as a good opportunity to sell dollars to buy pounds.
Sterling seems to be pointing in a much more positive direction ahead of Thursdays UK BoE decision and the EU summit where progress on Brexit and confirmation of transitional arrangements might occur.
With such heavyweight economic and political decisions both sides of the Atlantic it would be very surprising for GBPUSD to remain calm this week, there could easily be opportunities to sell below 1.40 and buy above.
Trump has also been catching headlines again after firing Rex Tillerson, his Secretary of State last week and then locking horns with Robert Mueller, the US special counsel over probes into Trump’s campaign team and Russian connections.
On the subject of Russia, any escalation in tensions with the UK could suck the US into a war of words, any major concerns here would see the US dollar displaying its safe haven attributes and rising in value.
This is a very busy week for GBPUSD with two major interest rate decisions within 24 hours, if you have any transfers involving the US dollar or any currency connected to it, do make sure to make plans around this volatile period.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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