A big day for the US which could rattle markets, the FED hike decision followed by Durable Goods Orders could be part due to the Brexit fallout.

Long-term confidence in the US Dollar to be tested

Yesterday and today are seeing the long-term confidence of the US economy under scrutiny for the first time since the Brexit announcement. Business confidence figures in the service sector came out yesterday, showing a sharp drop, which reversed the weakening trend on the Pound established in the morning. With this sudden Dollar weakness GBP/USD finished with some slight net gains for the day.

With so much focus in the UK a lot of attention on the external ramifications of a Brexit vote have been obscured. With the US economy itself heavily reliant on financial services, the destabilising effects of a Brexit vote is testing the confidence of investors. This month Deutsche Bank stated that the US has a 60% likelihood of a recession in the next 12 months, the highest since the Great Recession, up from 28% pre-Brexit.

Durable Goods orders, interest rates, and the US Dollar

Today the US Dollar will be the focus on currency markets, with the FED interest rate decision, monetary policy statement, and the announcement of Durable Goods Orders for the US all coming out in the late afternoon/early evening.

The likelihood of a hike is minimal. Of the planned four interest rate rises this year none have occurred, and the US were in much better positions previously to conduct the hike if they wished. Now an election is just around the corner, and the fallout of the Brexit vote hasn’t even been fully quantified yet.

The Monetary policy statement following the announcement should reflect this caution, and so too will Durable Goods Orders. This is a measure of long-term purchases – such as Airliners, bulk car orders – where buyers have to gauge what they expect consumer spending to be like months down the line. In the current climate, it’s understandable for buyers to be wary of a dovish climate in the future and I expect these figures to come in poorly, puncturing further the currently inflated value of the US Dollar.

With the anticipated negative tone, US Dollar buyers may see some improvements to their situation to end the month and some of the fallout extends beyond those clients simply holding Sterling. If yesterday’s movements are anything to go by, a move back up to 1.33 on GBP/USD is not out of the question.

For more information on how future US economic releases could affect your currency needs, call our trading floor on 01494 725 353 or email me here.

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