The sell-off taking place across the US and global stock markets is being attributed to the strength of the US dollar against other major currencies. Analysts have been some what confused about the share sell-off, as US companies are on course to benefit from tax windfalls and high profits this year.
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American giant UPS has suggested at the end of their post-earning conference call that they’re writing off nearly $40 million in currency fluctuations with other companies, announcing dividend cuts to account for the strength of the US dollar once repatriation of funds takes place.
The US economy is one of the only performing markets and the increase of interest rates over the past few years has made the US dollar one of the most lucrative currencies for investors. It is also considered a safe-haven currency and with so much uncertainty surrounding Europe, investors are looking for secure markets to hold their funds.
The Federal Reserve in the United States appear to be coming to the end of their plans to raise rates, with just one more potentially expected this year. Whilst this is unlikely to make much immediate change to the currency it may allow other economies to start to catch-up, so I believe we will see short term US dollar strength, potentially seeing the GBP/USD rate climb back towards the low 1.30’s at the turn of the year.
At lunchtime today the Personal Consumption Expenditure - Price Index data for September will be released which is a key indicator for inflation. The data is expected to show the level remain at 2%. Then at the end of the week the Non-farm Payrolls for October will be released with an expected increase from 134,000 new jobs to 180,000. This will also be coupled with Average Hourly Earnings which is expected to show a jump for October from 2.8% to 3.1%.
US data over the last 6 months has continued to be positive and this trend looks set to continue. In the last three weeks on a well-timed $200,000 transfer you would have achieved £5,550 more in return. Over the next few days this may continue to improve so if you do have an upcoming requirement make sure you’re in contact with your broker to discuss your options.
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