Over the last 18 months, economic data from the US has been impressive. Unemployment is now at the lowest levels in 48 years, Growth Domestic Product figures (GDP) is currently at 3.5%, monthly average earnings are continue to rise and the US continues to produce hundreds of thousands of jobs on a monthly basis. This has forced the Federal Reserve over the last 18 months to hike interest rates from 0.75% to 2.25% and investors have flocked to the higher returns which has strengthened the US dollar.
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Longer term forecasts are mixed for the US. Now that the mid-terms are over, we now know that Donald Trump’s Republican Party lost the House of Representatives to the democrats but gained strength in the Senate. Neither is more important than the other, however it’s important to understand that the House sets the agenda for legislation.
What that means is that the House are unlikely to allow further tax cuts or allow changes to Obamacare. Furthermore the House could demand to see Mr Trump’s tax returns which some are arguing could put serious pressure on the President and consequently US dollar exchange rates, as change could be on the horizon. January 3rd is when all new Congress members return for the 116th Congress, and the weeks that follow could influence US dollar exchange rates. Personally I expect the US dollar to have a slow start to 2019 until we know how the new Congress will proceed.
In the short term I expect the US to continue to churn out good economic data readings which could be as early as tomorrow. Chairman of the Federal Reserve Jerome Powell will address the public at 16.30. Many forecasters are suggesting that the FED will raise interest rates next month, if he hints towards this I would expect the dollar to finish the day on a high.
With reports now suggesting that a vote of no confidence or further resignations from Conservative MPs are on the horizon because of yesterday’s events, I’m confident that Brexit negotiations will be the key driver for GBPUSD exchange rates in the weeks to come.
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