The US dollar strengthened yesterday against the pound despite a host of US data releases which were mostly negative. Initial and Continuing Jobless Claims were both released higher than the previous and expected figures, along with Core Personal Consumption Expenditure Price index, which showed that the average amount of money being spent by consumers had fallen in October. However the US dollar still made gains against the pound which was likely attributed to Governor of the Bank of England Mark Carney's warning that a no-deal Brexit could plunge the UK into the deepest recession since the 1930s. As the chance of a no-deal Brexit becomes a possibility, investors have moved their funds out of the pound and into the safe haven US dollar.
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Last night, minutes from the Federal Reserve’s latest interest rate decision meeting were released, when it was announced that Interest Rates were kept on hold at 2.25%. Federal Reserve Chair Jerome Powell stated that interest rates are currently just below a neutral point, which would keep growth at a sustainable and consistent level. This suggests that another hike at the next FED Interest Rate meeting on 19th December was likely, but that the path of continuing to hike interest rates throughout next year may now not be the case.
It was only last month that Powell had stated that the bank had a long way to go before reaching the neutral level, which gave investors confidence that the FED would continue with its aggressive monetary policy stance. However the FED has come under scrutiny from Donald Trump lately who has blamed rising interest rates for a falling stock market and said that future hikes are posing the largest risk to the US economy.
Trump has made it very clear that he is not happy with his appointment of Powell as Chairman of the FED and it would appear that this softening of stance from the bank has been prompted by this. Powell did however defend his position on gradual hikes, stating that they will be paying close attention to all financial and economic data which will determine the path for its policy going forward.
Tomorrow sees the start of the G20 Summit in Buenos Aires, where it is expected that Trump will meet with Chinese President Xi Jinping over a working dinner. As tensions are high between the two leaders, I would expect increased volatility for US dollar exchange rates, therefore clients with an upcoming US dollar transfer to make could benefit from getting in touch as soon as possible to plan around this event.
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