The sterling vs US dollar interbank exchange rate has reached 1.3507 today. This is its strongest in 19 months, or since May 18th 2018.
One reason why the pound to US dollar exchange rate has gained is because the Conservative Party has won the UK’s general election. As a result, Prime Minister (PM) Boris Johnson looks set to finalise the UK’s Brexit deal soon, which may give confidence to British businesses and accelerate the UK’s economy in 2020.
That said, looking to the United States, the latest US economic data has exceeded forecasts, while US President Donald Trump has reportedly “signed off” a trade truce with China.
Paradoxically however, this has weakened the US dollar, because when America does well, this increases “risk appetite”. This is when the world’s investors feel confident enough to buy assets outside the USA, thereby weighing down the buck.
The USA created a bumper 266,000 jobs last month, according to the closely-watched Non-Farm Payroll last Friday. This was above forecasts for 180,000 new positions and helped push down America’s unemployment rate back to 3.5%, a joint multi-decade low.
As a result, this week the US Federal Reserve held interest rates steady at 1.5%-1.75%. This is because, what with America creating lots of jobs, there’s little reason for the Fed to ease monetary policy.
However, Fed Chairman Jerome Powell also added that it would take a “significant, persistent” rise in US inflation for the central bank to lift interest rates, which served to weaken the greenback.
Elsewhere, it’s been reported that President Trump has “signed off” on a US/China trade truce. Apparently, Washington will halve its tariffs on $350 billion of Chinese imports, while Beijing will buy more US farm goods.
However, although this would be good news for the US economy, it’s again weakened the US dollar by encouraging the world’s investors to buy assets elsewhere. In addition, it’s worth noting that the trade truce has yet to be formally announced, so some observers remain sceptical.
Next week, key US data includes Friday’s US economic growth figures for Q3, from July to September, as well as the ongoing impeachment hearings against President Trump. Both these factors may influence the greenback.
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