Investors were hoping for a FED rate hike this year, but after Friday's disappointing Non-Farm payrolls are we likely to see one before 2017?
At the end of last week, an improvement in UK economic data, coupled with a fall in US employment and average earnings, helped Cable rates hit their highest levels in just over 2 months on Friday. Over the course of last week, the Pound gained by more than 3% against the USD and to put that in to monetary terms a $250,000 purchase at the end of the week compared to the beginning could have saved you £6,500. This goes to highlight just how important it is to have an experienced currency broker on your side who can keep you up to speed with all the latest market movements.
Friday’s sharp fall in employment in the US, coupled with low average earnings, now mean that a rate hike at the Fed’s next interest rate decision towards the end of this month looks completely off the cards. One of the main factors in the Dollar’s strength this year has been the promise of further interest rate hikes following on from their most recent hike in December, but as the chance of this becomes less and less likely I believe the Dollar will suffer as a result. Couple this with the fast approaching Presidential election in November and I believe that it won’t be until 2017 now before we see an interest rate hike across the Pond.
With this in mind, any clients selling USD to buy Pounds may be wise to move sooner rather than later to benefit from the near 30 year highs we are currently seeing to buy Pounds. Any clients buying the US Dollar may be sensible to take advantage of any spikes we see, similar to those last week, as I do feel the Dollar’s losses will be limited due to its safe haven status and the fact that interest rates are still far more favourable to investors than in the UK and Europe.
At the end of this week there is more data from the US in the form of inflation figures for August. Similarly to jobs data and average earnings, Janet Yellen has earmarked these figures as extremely influential in any decision by the Fed to raise interest rates. If these fall in line with last week’s data then we may see another spike for USD buyers to take advantage of. We also have the G20 meeting in China over the weekend and today, which will be President Obama’s last. Obama told Theresa May on Sunday that the US will stick by the UK following Brexit but stood by his claims that he felt Brexit was a mistake and vowed to prioritise the US’s talks with Europe over the proposes Transatlantic Trade and Investment Partnership before a UK-US trade deal.
The FED may not raise rates this year and coupled with the US elections, GBPUSD exchange rates could be in for further strength this month. Get in touch with our brokers today if you have an upcoming US Dollar requirement on 01494 725 353.
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