Often on the currency markets when a trend looks completely assured something happens to change the picture and so it is with the US dollar and interest rates. Despite the US economy roaring ahead and investors predicting further interest rate hikes this year, the Fed this week were less bullish (positive) than some had hoped.
So too is it the case with the ‘Trump Rally’ which whilst helping underpin the strength of the greenback in recent weeks has lately come to be viewed in a slightly different light. Mr Trump is facing a series of important setbacks from his immigration bans to asserting his pro-business agenda.
Yesterday’s slightly worse Jobless claims data indicated an economy not quite as resilient as might be needed to see a rate hike in March that would trigger further US strength and the US dollar has scaled back some of its recent advances. With the Fed acknowledging Trump’s agendas and doing their best to remain neutral on politics, I feel it unlikely they will raise in March. This should lead to a volatile period on the US dollar as every piece of economic data is pored over for clues as the likelihood of any hike.
Newly appointed Treasury Secretary Mnuchin stated yesterday an ambitious tax plan aimed to increase growth by 3% this year. This is against more conservative estimates of 2.3%. The general impression is these bold plans might not be fulfilled and some were expecting plans for less tax and increased stimulus to come sooner than might now be expected. There is further unease at Trump’s statement that the strong dollar is ‘killing’ the US economy. The US dollar remains strong against most currencies but might now face some challenges particularly if there continues to be a lack of clarity from Trump and his team.
In the end it might be factors outside of the US which dictate the ultimate path with investor’s unease at the political situation in the Eurozone helping the US dollar to rise. Against sterling the US dollar could make quick progress once any Article 50 decisions are made and longer term if the UK economy struggles whilst strong growth in the US continues.
I would not be surprised to see further weakness on the US dollar and suggest any spikes are capitalised on since the market looks setup to at some point once again strongly favour the US dollar. New Home Sales and the Baker Oil Rig Count today are unlikely to alter the improved prospects for US dollar buyers available.
If you are buying $200,000 it is £7,112 less costly today than the January lows. Given the likelihood of future US dollar strength against sterling I would suggest this is an opportunity to be very much aware of in the current market.
The US Dollar could be set for a dip if the FED hold off on further rate hikes this year. If you have a US Dollar buying or selling requirement, detailing your needs with one of our brokers could help mitigate risk and as such, providing peace of mind during intense market volatility. Call us on 01494 725 353 or email me here to learn more about the different services available to you.
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