The US Federal Reserve, the US central bank, are due to next meet on 31st July at a meeting that is being closely monitored by investors and the money markets. There has been mounting speculation Jerome Powell, the Chairman of the Fed, will look to a 0.25% cut. At present, the market is mixed in its view of whether it will be this quarter point cut, or a more significant 0.5% cut.
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According to the FT, the latest market news following Jerome Powell’s speech last week was one of a 0.25% cut. The raising and lower of interest rates is a key factor on exchange rates and generally speaking, cutting an interest rate could see volatility for the currency.
Whilst the US dollar has at times weakened lightly as news has been released suggesting cuts, the prospect of cuts by other central banks has helped the dollar remain strong in recent weeks. With the European Central Bank likely to and the Bank of England considering such a move, the dollar has retained its position, in part perhaps due to it still holding the highest interest rate for the world’s leading economies.
The early part of this week contains very limited US economic data but Friday’s GDP (Gross Domestic Product) data will be of importance ahead of the Fed decision at the end of the month. The current consensus is for 1.9% growth which is below the previous annualised figure of 3.1% but still healthy. The data suggests the US economy is still growing but at a slower pace. This mixed message helps explain some of the troubles the Fed has in considering whether to cut, and by how much.
One critic of Fed policy in raising interest rates has been Donald Trump who has been attracting his own controversies once again. The trade war truce has to an extent limited the immediate influence of trade wars on US dollar exchange rates but remains a potential issue.
Brexit news in the UK is likely to be a factor to consider for GBP/USD exchange rates this week as we learn of the new British Prime Minister. GBP/USD reached its lowest point in 2 years on the interbank rate last week, as uncertainty over no deal and a strong dollar combined.
Any clients with a GBP/USD transfer to consider may wish to contact us to discuss the latest news and events influencing exchange rates.
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