The US dollar has continued to fall against the euro and pound since the beginning of this week and has provided our well informed clients with a great opportunity to purchase foreign currency with US dollars. To put this movement into monetary terms, a $200,000 transfer into euros or pounds would have achieved an additional €1,900 or £2,500 respectively if timed at yesterday’s highs compared to the lows seen last week.
|Currency Pair||% Change in 1 month||Difference on £200,000|
One factor weighing on the dollar is the prospect of a partial US Government shutdown at midnight on Friday if Congress cannot agree to budget funding, including Trump’s request of $5bn towards building his signature wall between the US and Mexico. Trump said just last week that he would be ‘proud’ to put his Government into shutdown if he could not secure the funding, however this could be extremely negative for the US economy, potentially leaving 800,000 employees without work or pay over the festive season, and disrupting Government operations, in turn having a knock on negative effect on the US dollar.
Another factor towards recent US dollar weakness is the growing prospect of either slowing or stopping interest rate hikes in the US. Over the last two days, President Donald Trump has heaped pressure on the Federal Reserve, urging them not to raise Interest Rates at their next decision meeting later today.
It has been widely expected that the FED would raise rates by another 0.25%, bringing the current rate to 2.5%, continuing with the FED’s aggressive policy stance seen since 2015. However Trump tweeted again yesterday urging policymakers to ‘feel the market, don’t just go by meaningless numbers’, just before the two day meeting began in preparation for its announcement this evening.
This also follows a tweet on Monday from Trump criticising the FED for ‘even considering’ another interest rate increase, taking into account the current global economic and political uncertainties.
Although it is still expected that the FED will decide to raise Interest Rates once more at this meeting, the chances of them following a similar path into 2019 are already diminishing, following from recent comments from Federal Reserve Chairman Jerome Powell last month. Powell had stated that the current policy rate is just below a neutral point which would keep economic growth at a consistent level, signalling a need to scale back or even pause further hikes next year. If it is decided to keep interest rates on hold at this meeting, or there are any further signals towards pausing hikes next year, I would expect the US dollar to weaken further, therefore clients looking to sell US dollars may wish to move ahead of this announcement to limit themselves against any further losses.
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