A strong finish to the week for the US economy did little to help the US Dollar, which remains down against both the Pound and Euro. Further movements for GBP/USD could present themselves off the back of the Bank of England's Super Thursday. The below table shows Pound to US Dollar exchange rate movements for the past 3 months.
|Currency Pair||% Change||Difference on £200,000|
The US Dollar is a little weaker on the relief of a Macron victory. The Euro has strengthened and this has seen investors moving funds out of the US Dollar into the Euro. Even a very strong employment report on Friday wasn’t enough to stimulate interest back in the US Dollar. Despite some analysts giving over a 90% probability of a hike in June, the US Dollar is much weaker, why is this? Despite Unemployment dropping to a 10 year low of 4.4% and lots of new jobs being created average hourly earnings growth dropped to 2.5%.
What this means is that more Americans are employed but they are earning less.
With various Donald Trump pledges and plans hitting brick walls left, right and centre this was of yet further concern for investors in the US Dollar.
A hike is still likely in June but there are now a number of much more pressing questions over the Trump administration’s ability to push through the reforms they wished. Much of the hype surrounding the US Dollar has been based on its and the US economy’s future performance. With this now being called into question markets are sceptical about how this will pan out further down the line for the ever unpopular President and his team.
On Friday the Democrats and Republicans came to agreement on a deal to prevent a government shutdown. This occurs when there is disagreement about passing or not legislation to fund the government and various agencies. What is important here is the Republicans and Trump had to concede on many issues, notably there was no inclusion of funding for ‘the wall’. This is significant because it shows weakness in the Trump government plus they have put back many key decisions until September when this whole issue will be revisited. Hence US Dollar weakness.
Aside from some speakers from the US Federal Reserve the main US Dollar data this week is on Friday with Retail Sales. The biggest news this week on GBP/USD exchange rates will however I believe be Thursday’s Bank of England releases. The tone around Sterling is much more positive lately and if backed up by the data and commentary Sterling could easily break the 1.30 if it doesn’t before then.
Generally speaking higher interest rates mean a stronger currency and with the Fed looking likely to raise interest rates we would perhaps expect the US Dollar to be stronger against Sterling down the line. However as we can see the concerns over Trump and his ability to make good on electoral pledges are holding back the greenback.
We are at a very important time for GBP/USD rates with the best rates in six months, personally I think the trends will continue to favour Sterling so if you have a transfer selling US Dollars moving sooner might be best. Keep up to date with us here for this important week on GBP/USD economic releases by calling 01494 725353, alternatively you can email me directly here.
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