The US economy has shown sudden signs of decline, could the value of the US Dollar be the cause of the problem?
It is no coincidence that data on the UK’s economic outlook is suddenly shining whilst the US has suddenly seen a steep downturn in their own outlook.
The largest movements on the currency markets yesterday were recorded in the wake of US non-manufacturing PMI data. This is a measure of business confidence in the non-manufacturing sector. Whilst still positive, it is only marginally so, a sharp change from only a month ago.
With so much currently on the table for US economic outlook, including their upcoming election, it is difficult to pin down exactly what the sudden source of this turnaround is. Frankly it is a combination of factors, but the most worrying explanation for investors comes from the theory that the value of the US Dollar is harming the economy. Suddenly their service sector is seen as very uncompetitive compared to other countries who are not enjoying decade-long highs in their own denominated currency.
This theory also fits in nicely for the sudden turnaround in UK business outlook in most sectors alongside the sudden cheapening of the Pound. These cracks in the visage of the safe-haven status of the Dollar have allowed rates to reach their highest levels since the Monday after the Referendum.
The Beige Book reports on the current economic situation of the US. Similar to the non-manufacturing surveys yesterday, this is also used as a measure of economic outlook, but across all sectors. With the sharp and sudden turnaround in the non-manufacturing sector, it would be surprising if this didn’t filter to a large degree into this report.
This is out at 7pm BST, so this fortunately gives US Dollar sellers a few day to take advantage of rates whilst the central level is still in the mid-1.30’s. As yesterday showed this could change very quickly.
For more information on how the FEDs beige book could impact your US Dollar requirements, call our trading floor on 01494 725 353.
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