Non-Farm Payroll data released on Friday highlighted a strong economy, albeit one that might have peaked. The figures showed 155,000 new jobs being created in November which whilst positive, was below the averages of the last quarter.

Currency Pair% Change in 1 monthDifference on £200,000
GBPUSD2.77%$9,804

The Unemployment rate was confirmed at 3.1% and wage growth 3.7%, all reflecting a healthy economy. This should be all the information the US Federal Reserve now need to hike interest rates for the 4th time this year, on the 19th December.

The US dollar is strong based on these sentiments and an interest rate increase is very much priced into the strength of the US dollar at present. What markets are now keenly eying is the prospect of any future recession or slowdown in the future. This could very much see the US dollar weaker in the future as investors remain fearful over whether the US economy has now peaked.

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There are high expectations that the US will continue to grow strongly but by some measures the market feels that the US might have already reached a peak. Expect to hear more about the US ‘yield curve’ this week. This is the gap between 10-year and 2-year Treasuries, or US Government bonds. An inverted or negative yield curve has occurred before every US recession since the second World War.

This yield curve means you would essentially be paid more for shorter term investment in US debt, than longer term investment. A sign that the market feels longer term, the US economy will be weaker.

The Trade Wars are also a weight on the growing negative sentiments that last week saw US stock markets take a big hit. Whilst the immediate tensions with China have stabilised as Trump extended the current period of 10% tariffs, rather than imposing the new 25% levels, the market is concerned about how this will effect the US economy in 2019.

Whilst the relations had been appearing to improve, the arrest of Meng Wanzhou, daughter of the founder of Huawei, a Chinese mobile phone and electronics company. Currently detained in Canada, this issue is closely linked to the Trade Wars and US-China relations. Any worse news here could further unsettle the markets and create volatility on US dollar rates.

GBPUSD Forecast – Brexit and Trade Wars

GBPUSD rates have been some of the most volatile following the Brexit vote with a range of almost 30 cents between the high and low. The lows of 1.20 seen in 2017 could easily be in focus again should the UK appear to be more closely headed for a no-deal Brexit, should the Parliamentary vote on Brexit tomorrow fail to pass the House of Commons.

There is a variety of outcomes from this major event for the pound, many of which are sterling negative. This is also an important week for the pound with a series of important UK economic data released including GDP this morning and Unemployment tomorrow.

With the dollar much stronger against a weaker pound, it appears the market may well continue to favour US dollar sellers against the pound.

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Currency Pair% Change in 1 monthDifference on £200,000
GBPUSD2.77%$9,804
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