The USD has made further gains against Sterling this week following the news that UK house prices rose in July at their slowest pace in three years. Cable is now trading below 1.30 for only the second time in ten years, the first being just last month, but other than that the last time rates were this good for buying Pounds with Dollars the year was 1985! But it’s not just the UK economy’s woes helping the Dollar make gains against the Pound.
Yesterday’s US jobs data highlighted a fall in the number of American’s filing for benefits, suggesting that the labour market is improving which could therefore lead to stronger economic data in the future.
The US Federal Reserve has previously stated that an improvement in the jobs market was crucial if there is to be an interest rate hike in the US, so if these positive figures continue we could see a much anticipated rate hike at the end of this year. This is in stark contrast to the UK, where we have recently witnessed a rate cut. If there is a rate hike in the US then I believe that we would see further strength from the US Dollar as investors seek higher returns on their investments.
There is however a potential spanner in the works for the USD’s recent strength, and that is the ever looming presidential election finale in November. For example, in the weeks and months leading up to President Obama’s re-election in 2012, we saw a huge amount of volatility on Cable exchange rates, with the Dollar weakening significantly against Sterling. Being the controversial character that he is, I also believe that Donald Trump will continue to create volatility on the currency market. He has ignited fresh criticism this week, hinting that his supporters could exercise their rights to use fire arms to assassinate Hillary Clinton earlier this week, whilst claiming yesterday that Obama and Clinton are the ‘co-founders of Islamic State’. These comments have not helped him in recent polls, with Clinton taking a slight lead, but it is still early days in the race and I am sure there will be many more developments as the coming months unfold.
Looking further ahead to economic data releases next week we have inflation figures for July on Tuesday. These will give a good barometer of the economic strength in the US and if they are positive then I believe we will see further USD strength. There are also the FOMC’s minutes from their latest interest rate decision to hold rates at 0.5%, so this could give an insight in to the reason for their decision and may also drop some hints as to when we can expect to see a rate hike.
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