Sterling has gained to reach a two-month high versus the US dollar on the interbank market this week. In part, this is because of the US Federal Reserves interest rate cut and world investors are encouraged by the rumours of Brexit progress, although they’d like to see definite agreed changes too.
Meanwhile, turning to the USA, America’s economic data has exceeded expectations recently, though the US Federal Reserve has still cut interest rates again.
To begin with, the USA’s central bank, the Federal Reserve (Fed), cut interest rates for the second time in 2019 this week, to 1.75%-2.00%, as widely forecast. This is only the Fed’s second reduction in borrowing costs since America’s current economic expansion began, 11 years ago.
In particular, the Fed reduced interest rates again, to protect America’s economy from the growing effects of the USA’s and China’s trade war. The Fed’s Chairman, Jerome Powell, said that: "We took this step to keep the economy strong.” Moreover, the Fed left open the possibility to cut interest rates further this year.
In spite of the Fed’s decision to cut US interest rates this week, America’s latest economic data has been upbeat for the most part. For example, US industrial production expanded by 0.6% in August month-on-month, according to official statistics on Tuesday, above market predictions for 0.2%. This was the sharpest expansion in a year.
Meanwhile, this Wednesday we learnt that America’s housing starts, indicating how many new single-family homes or buildings have been built, rose by 12.3% in August, easily exceeding expectations for 4.5%. This bodes well both for America’s construction industry and the housing market.
Looking forward, the pound to US dollar interbank exchange rate may be influenced by Brexit, as well as US economic releases including Markit’s PMIs for September, and consumer confidence statistics.
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