This report will examine the factors that could affect exchange rates this week in order to help you stay informed if you need to make a currency transfer.
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The Dollar received mixed signals from the US economy yesterday following a raft of data, some of which impressed the markets although some was disappointing. US retail sales numbers came in substantially higher than expected at 0.8% which helped support the Dollar against expectation of just 0.3%. Initial jobless claims for December also saw a drop in the numbers indicating a healthy labour market.
This data is welcome news after US inflation data this week saw a fall to just 1.7% which raised some concerns with the strength of the economy. Purchasing Managers Index data for the manufacturing sector also arrived above forecast but the services sector saw a sizeable drop down to 52.4 from an expected reading of 55 creating some uncertainty for Dollar rates.
The US Federal Reserve raised interest rates on Wednesday as widely expected taking the headline figure to 1.5% making it the third rate increase seen this year. Fed Chair Janet Yellen highlighted a better growth outlook for the US which should bode well for the Dollar. The Dollar will now be driven by the course of interest rate increases throughout 2018. The latest guidance from the Fed remains largely unchanged and expects rates to continue climbing to an equilibrium rate of around 2.75% in the long term. As things stand another three rate rises are likely to be seen next year which should help support the Dollar further with another two or three hikes ear marked for 2019 taking levels to the target. The US is taking a strong lead in the reversal of policy in the aftermath of the financial crisis of 2008 and if other economies around the world do not follow suit then the Dollar could see some sizeable gains looking forward.
Industrial production numbers for November are released this afternoon as well as well as the Baker Hughes oil rig count. Clients with a GBP USD requirement should pay close attention to events in Brussels at the EU summit as any official agreement should help see the Pound rally against the Dollar.
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