The pound to US dollar interbank exchange rate strengthened somewhat this week, in part because the world’s investors feel more confident that one single party will win the UK’s election next month.
Turning to the USA, the so-called greenback lost out this week, because US President Donald Trump was unclear in a speech whether he’ll sign the hoped-for US/China trade truce.
Elsewhere, US inflation remains close to the Federal Reserve’s official 2.0% target, while the US economy remains comparatively solid, next to its developed world peers. Looking ahead, key economic data includes today’s US retail sales for October, which may affect the value of the buck.
In a speech in New York this week, in which it was widely hoped that Preident Trump would update the financial markets about the US/China trade truce progress, Donald Trump instead largely laid out his stall to be re-elected in 2020. When he touched on the topic of the “first phase” trade truce with Beijing, the US Commander-in-Chief merely said that he’ll only sign a trade deal, if it’s “the right one”.
This leaves open the possibility that President Trump may not sign the truce, even though it’s already being negotiated, and instead could increase US tariffs on China in December. The lack of a truce could further weigh on America’s factories, and increase costs for consumers, thereby weakening the US dollar.
Turning to the US economy, inflation rose by 0.1% to 1.8% in October, according to official statistics this week. This is a seven-month high, led by greater costs for petrol and medical care in the United States, and close to the Federal Reserve’s 2.0% target.
This tells us that America’s economy remains buoyant enough to generate consistently higher price pressures, unlike other G10 economies like the Eurozone or Japan, which have battled deflation in recent years.
In turn, this may encourage the Fed to keep interest rates steady for the meantime, having reduced US borrowing costs to 1.5-1.75% recently. US interest rates still remain among the highest in the developed world, supporting the US dollar.
Looking to today, US retail sales for October are released, and forecast at 0.3%. A figure above or below this prediction may impact the greenback.
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