GBP/USD interbank rates reached their lowest levels in over four months yesterday amidst the continued Brexit uncertainty hanging over the pound, whilst the dollar is seemingly benefiting from its safe haven status.
|Currency Pair||% Change (Month)||Difference on £200,000|
This new low continues what has been a month of steady decline for the pound against the dollar and it is unclear as to whether things will get worse for the pound before they improve. A key driver on dollar strength has been the trade war between the US and China, but the US did ease some restrictions on Chinse telecom firm Huawei this week, which gives hope to a potential softening in tensions for the future.
The tensions between the US and China continue to impact on the confidence in the global economy, worrying investors and therefore leading them to act more cautiously and look towards safe havens for their investments, such as the dollar, which is one of the reasons we have seen the greenback perform so well against GBP and EUR.
Trade talks between the US and China had been starting to make some progress, but this month relations have deteriorated again and US President Donald Trump announced earlier this month that he would increase tariffs on $200bn worth of Chinese goods from 10% to 25%.
China’s retaliation to this was to up tariffs on $60bn worth of US goods, and there are fears that this dispute is going to get worse before it gets better. This could result in further gains for the USD against the pound and euro in the coming weeks, especially with the European elections commencing tomorrow as well as the fresh scrutiny over Theresa May’s revised Brexit deal.
Yesterday the Office for Economic Co-operation and Development, (OECD) a forum for governments to work together and find solutions to common issues they face, came out to urge the US and China to end their trade disputes to stop the damage that is being done to the global economy.
They have cut their global growth forecast for 2019 and have warned that if the dispute intensifies, 0.7% could be knocked off global Gross Domestic Product (GDP) by 2021-22, which would likely have a significant impact on the currency market.
This evening at 19:00 the latest Federal Open Market Committee (FOMC) minutes are released which will likely give an insight into future monetary policy from the Federal Reserve and should be watched keenly if you have an upcoming dollar requirement. There are also Durable Goods Orders released on Friday, which are expected to show growth and could therefore drive volatility on GBP/USD.
Stay in contact with your account manager this week, who can keep you informed of how these data releases affect exchange rates.
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