Dollar set to show some frailty in climate of uncertainty

The Dollar is another currency which is beginning to knock on the door of some of the highs seen against the Pound during the more immediate aftermath of the Leave vote at the end of June. A mixture of its own success and safe-haven status has continued to keep the Dollar as the clear winner on the currency markets as businesses, investors, and individuals clamber for some security in an uncertain marketplace. However, even the US economy seems to be coming under pressure over the past week or so.

The unemployment rate rose at the beginning of the month, and US retail sales actually contracted, being saved only by high automobile sales.

The US, like the UK, has an economy with its fortunes tied to its financial services industry. So the ripple effect from the Brexit vote, and the potential problems involved with having a Dollar so overwhelmingly expensive is beginning to become telling. With these preliminary indications, inflation data coming out today is expected to show a contraction as well. Dollar buyers may see some benefit from the spotlight being taken away from the UK economy and instead highlighting some chinks in the armour of a Dollar essentially at the height of its historical buying power.

Will the US hike rates this year?

Tomorrow markets will be given access to the minutes from the FED’s most recent Monetary Policy Meeting where they decided unanimously not to raise interest rates once more. Market patience is now wearing thin.

One of the main reasons why Dollar’s value has left its competitors behind this year has been due to the plans for the Federal Reserve to conduct four subsequent hikes in 2016 after their historic increase to 0.5% in their interest rates last December. Missed opportunities, continuous delays, and expectations that the upcoming election will provide further excuses for stagnation makes it more likely than not that the Dollar will begin to deflate as the year continues.

With the anticipated negative tone, Dollar buyers may see some improvements to their situation to end the month as the minutes pour out further excuses to not take a bold step to increase interest rates again. If the news comes in very poorly today, a move back up to 1.30 on GBP/USD is not out of the question.

US Dollar sellers can still enjoy the recent highs against the Pound, with a lot at stake it may be worth getting in touch with our team. Call us on 01494 725 353.

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