US Dollar’s status as a safe haven

The US Dollar is used by investors as a safe haven currency to seek reduced risk from volatility or weakness elsewhere in the global financial system. The shooting of the Russian ambassador to Turkey in Ankara and the shocking German Christmas market attack in Berlin are two such events. Overnight we have seen the US Dollar firmer against its counterparts as investors increase their holdings of the US Dollar and ponder the next direction of these dreadful moments.

The US Dollar is already stronger following the US Interest rate decision where the US Federal Reserve committed to raising their base interest rate from 0.5-0.75%. Whilst expected this move combined with the expectation that the Fed will remain in a position to raise rates further has helped the US Dollar cement 13 year highs against the Euro and retain 30 year highs against the Pound.

Important data could help the US Dollar even further

Important economic data for the US Dollar is due on Thursday when we have the latest GDP (Gross Domestic Product) growth data due. The US economy has been growing at a healthy pace of 3.2% for the last year and this is expected to increase to 3.3%. With Janet Yellen stating yesterday she felt the US jobs market was at its strongest in a decade investors could easily be reading into a more hawkish Fed. Hawkish (or a ‘hawk’) in this instance refers to a policy maker keen on higher interest rates. This is quite significant because Janet had previously been seen as more of a ‘dove’, meaning less likely to seek higher interest rates. It is therefore a mark of the improving US economy with unemployment stable at record lows of 4.6% that more and more members of the Fed would be hawkish.

Where do I see Pound to US Dollar exchange rates in 2017?

I think the US Dollar will remain subject to expectations over how likely any interest rate hikes are in 2017. Looking at how much the Fed struggled to see the right conditions in 2016, I think it would be right to be slightly pessimistic about further hikes in 2017. I think one or two is more likely than the three some predict. Either way with shifts in geo-political issues concerning Russia and political uncertainty increasing in Europe the US Dollar should remain well supported. Considering sterling could be hampered too in early 2017 clients looking to buy US Dollars should perhaps consider moving sooner. Clients holding US Dollars to buy Sterling should find rates continue to remain favourable. Rates trading between 1.10 and 1.20 could easily become more of a reality in 2017.

The US Dollars strength is expected to continue with the prospect of further interest rate hikes in 2017. For this reason, Clients looking to buy or sell the US Dollar may benefit from getting in touch with their assigned broker on 01494 725 353 or by email at jmw@currencies.co.uk.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.