The outlook for the US dollar is looking remarkably upbeat following strong US Gross Domestic product (GDP) released yesterday afternoon. US GDP grew at an annual rate of 3.2% in the third quarter, well above the forecast of just 3%. The strong figure is important as it represents the fastest growth in two years. The policies that President-elect Trump is expected to introduce are expected to fire up growth even further with a big splurge on infrastructure spending as well as huge tax cuts.
Such action is also expected to be inflationary so the foundations are being laid for interesting times ahead. Despite the strong figures the US Dollar remained subdued whilst taking losses against the Pound with USD/GBP down 0.8% on the day.
The Fed meeting in December is likely to create added volatility for Dollar exchange rates and in theory the Dollar could start to strengthen as those interest rate hike expectations begin to bite. However as far as GBP/USD is concerned the Pound is now looking particularly resilient having gained around 5 cents in the last few weeks following the Trump victory. There is a high chance that the Fed will hike in December taking rates to 0.75% so the US Dollar may push further against the Pound if this happens. The Fed are clearly comfortable to hike in the month of December as they have done so in the past. Sometimes central banks will avoid certain months of the year to change monetary policy but my view remains there will be a cut at this time. If not the Fed will have not fulfilled on any it’s planned rate hikes throughout 2016.
There is a raft of US data released this afternoon which should create added volatility in an already uncertain environment post Trump victory. US personal consumption numbers are released this afternoon alongside home sales and employment data.
The US Dollar could strengthen significantly against the Pound if the FED vote to hike rates in December. Those that are looking to buy the US Dollar in the weeks ahead, may be prudent in talking through your requirement with a knowledgeable broker. Call our trading floor on 01494 725 353 or email me here to learn more.
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