Anyone with a US Dollar position to buy at the moment has really been feeling the pain, buying USD rates are now at the lowest levels seen for over 30 years and were not helped by the timelines for invoking Article 50 over the weekend. The reason for the fall has been down to a number of reasons; the contraction seen in economic activity in the UK, the run to safe haven currencies due to the election race in the US and indeed speculation about interest rate change in the US and the UK.

Unfortunately in the medium term I don’t expect any of these drivers to evaporate and I expect GBPUSD to remain under continual pressure for at least the next 6 months, i.e. I don’t expect GBPUSD levels to return to the 1.30+ for some considerable time.

UK PLC contraction on GBPUSD rates

Uncertainty within the UK with regards to what the economy will look like post the EU break-up is resulting in the Pound to fall out of favour, there is less investment in the pound resulting in its demand to fall along with its value. It is also being ignored as a ‘safe-haven’ currency now which is further weakening demand. We will know more once the government gives us more information on the trade deals that are being done and what the ‘makeup’ with the EU will look like. What is worth noting is that a majority of the major players in Europe have their own elections within the next 15 months, so any deals agreed on the structure of what the UK/EU agreement will look like could be cancelled if different governments come into power in France, Germany or Italy.

US election on GBPUSD

The fundamentals are that the US candidates are the two most unpopular ever had, both have very different plans for the future of the US and therefore the world. This level of global uncertainty is causing traders to put their money into safe haven currencies, i.e. the US dollar. This influx of money into the US is making the dollar more valuable and more expensive to buy.

US interest rates set to climb?

Janet Yellen, the head of the FED, has made it clear that she plans to increase the US interest rates within the next 6 months. When this rise will come, and by how much, really I think depends on the election race in the US and who becomes the next President. However, with speculation building that the US will raise interest rates and that the UK will cut interest rates, the interest rate differential is expected to get wider. As a result, investors are putting their money into the US dollar rather than the Pound due to this interest rate differential.

GBP/USD rates currently sit range bound at 1.265-1.27 and I don’t expect the range to be broken until Non-Farm payroll data is released on Friday.

The First Friday of the month means one thing, US employment figures. This is keenly looked at as an indicator towards interest rate change. It is well known for being a difficult number to forecast as forecasts are made on a small amount of real data. In either case it is widely expected to show an improvement in figures for the USD so I expect buying USD to get more expensive in the build up to this event. Unfortunately, there is very little economic or political events to give hope to USD buyers, it is really about attempting to take advantage of any SPIKES or surprises in the market. Feel free to register for a SPIKE notification by getting in contact with us here.

US Dollar sellers have now been presented with the best opportunity to buy Sterling in over 30 years. Get in touch with our team today to make the most of these historic levels on 01494 725 353.


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