The US economy is growing at a slower pace than thought and Friday has the potential for US Dollar weakness if the latest Non-Farm Payroll data is poor. The article below looks at the likelihood of a US interest rate hike and the impact of upcoming data on USD exchange rates.
US GDP (Gross Domestic Product) data from Friday showed the economy growing at a much slower pace than anticipated by the markets for Q2 at 1.2% versus the forecast 2.5%. The fall was largely attributed to a lack of business spending which is a key component the Fed have cited in their decisions to raise interest rates. Business is investing less, McDonalds were just one of many companies reporting a much tougher quarter. This is in part due to concerns over the US election ahead and the global economic outlook, it appears the US economy has been reining in spending which is surely bound to only increase as we approach the election uncertainty in November.
It appears to me that the Federal Reserve are unlikely to raise interest rates in September, the next meeting after is the beginning of November (a week before the election) and then December. I doubt the Fed will see enough evidence of an improving economy by then to make the call. I would suggest in the immediate aftermath of the election the likelihood of a hike is determined by whether or not it is Trump or Clinton, the now affirmed candidates. Trump could unsettle markets whilst Clinton should inspire more confidence and potentially if the economic data suggests it is wise, trigger a hike.
One of the biggest beneficiaries of the Brexit and global conditions are clients selling USD for Pounds. With rates not far off the 30 year highs touched at the beginning of July clients buying sterling with Dollars might get some further good news this week with the Bank of England decision on Thursday. Friday however is the latest Non-Farm Payroll data which if bad could trigger USD losses as we saw on Friday as it makes any interest rate hikes less likely. For now the ball is firmly in the court of USD sellers but of course it won’t remain this way forever. As we approach the US election now only 3 months away the dollar is likely to come under further pressure and there are still some commentators predicting a US recession down the line. Depending on the Bank of England’s response on Thursday GBPUSD could easily slip below 1.30 before any bad US data on Friday brings it back above this historical benchmark.
For information on how future data releases could affect any US Dollar exchange call our currency brokers on 01494 725 353 or email me here.
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