US Dollar Supported after Fed Minutes

The momentum is now rapidly building for the US Federal Reserve to raise interest rates again after that first hike in December 2015. It has been revealed in the latest minutes that the decision to hold rates last month was a close call with some members stating that by not taking action now it could warrant a stronger monetary response going forward which could be damaging to the economic recovery. It has become evident that some of the more dovish policymakers supported an increase ‘relatively soon.

If it wasn’t for the US Presidential election then my view is that the November meeting would probably be the time to act. Even though the chances of a Trump victory are rapidly declining the Fed will still probably wait until December and at the very least mark the one year anniversary with 0.25% hike. With Trump now on the back foot and performing poorly in the TV debates along with harassment allegations the markets in my view have already priced in a US interest hike by the end of the year.

As far as USD/GBP is concerned the rates are still trading beyond 31 year highs. This is due to the combination of the strong dollar which has shown itself to be a solid safe haven currency and the weakness in the pound as a direct result of the Brexit vote to withdraw from the European Union.

It is worth highlighting that to date, the markets have not priced in the prospect a Trump victory at all and the dollar has not suffered as a result. Things can of course change though and with another 3 weeks to go there will no doubt be more bomb shells from both the Republicans and the Democrats.

US retail sales and producer price data are both released this afternoon and could create added volatility for the US Dollar.

GBP/USD exchange rates could enter a period of volatility as we approach November. Clients holding Sterling for US Dollars may benefit from calling our brokers today on 01494 725 353 to discuss your requirements.

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