Since the middle of April GBPUSD (cable) exchange rates have dropped 12 cents making a $250,000 purchase £16,000 more expensive. In today's USD report we look into the reasons behind USD's gains on Sterling. The table below shows the difference between the high and low exchange rate during the past 30 days, and the difference you would have achieved when buying £200,000.00, depending on when you carried out your transfer.
|Currency Pair||% Change||Difference on £200,000|
A robust US economy and a tightening of monetary policy by the Federal Reserve are the main contributing factors to why the US dollar is performing extremely well of late. Couple this with ongoing Brexit negotiations weighing down on the Pound's value, economists are not surprised that cable has fallen dramatically throughout quarter two.
The ongoing Brexit negotiates are not going away, therefore I find it difficult to see how the pound is going to gain substantial ground throughout quarter three and four. However the Bank of England’s upbeat stance in recent weeks and therefore the chances of an interest rate in August, or certainly by the end of the year, has improved confidence for the pound. So the question clients should ask themselves, is the pound at a turning point? If the Bank of England raises interest rates in August, global trade tensions ease and the Brexit negotiations go well, then of course I would expect the pound to rally and GBPUSD exchange rates to fluctuate in the higher 1.30s towards the end of quarter three. However the reality is that the interest rate hike is finely balanced.
Retail sales are up, the labour market continues to tighten and unemployment remains at record lows but Construction output and industrial production remain under pressure and could cause a problem for GDP.
I’m not convinced an interest rate hike will occur in August and I certainly don’t expect the Brexit negotiations to go well short term. Couple this with the Federal Reserve at full steam ahead with interest rate hikes and trade wars having the potential to strengthen the US dollar further, I don’t believe its good news for US dollar buyers. My personal opinion would be to take the risk out of the trade and buy upfront if I were buying dollars short term.
It’s a fairly busy finish to the week for US economic data releases. Q1 GDP numbers are to be released at 1.30pm today and 2.2% is expected which just shows the US economy is performing well as the UKs Q1 GDP figure was 0.1%. Furthermore initial jobless claims will be released at the same time and slight rise is expected to 220k., however as long as the figure doesn’t exceed 220k this shouldn’t cause a problem for clients selling US Dollars.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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