The trade war currently in the balance with the US and China is beginning to filter through to the currency markets as the GBP/USD rate moved above 1.42 yesterday. The below table shows the market movements for the GBP/USD rate in the last month:
|Currency Pair||% Change||Difference on £200,000|
This is only the second time that the rate has reached this level since the Referendum in June 2016. The US Dollar is normally considered to be a safe place once global uncertainty begins to rise however the potential growth In America has become a concern.
Essentially at the start of this year there was a belief that we could see four interest rate hikes this year and we did have the first last week. However, the US economic forecasts which are used to predict growth possibly didn’t consider trade barriers being introduced across the globe.
Should economic performance in the US begin to dwindle we could see the chances of three more rate hikes fall. If that was the case investors may move their funds out of the US Dollar in order to make returns in other ways.
Whilst in the past uncertainty like this may see the US Dollar strengthen as people protect assets, there could become a in balance as to where the greatest profits can be made. What this means in my opinion is the GBP/USD rate could be set to gradually rise, moving further away from last year's record lows.
Over the course of this week several members of the Federal Open Market Committee which votes on interest rates in the United States will deliver speeches. I would be very surprised if some members didn’t touch on the concerns of the Trump trade barriers and highlight the potential risks to economic performance.
With this in mind US Dollar volatility could continue until there is more clarity on the repercussions from other countries who Trump has introduced barriers to. Make sure you’re in contact with your broker if you have a US dollar requirement, with so much constantly changing there could be major risk and reward in the market.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353.
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