A key issue for the US dollar lately has been the prospect of the US Federal Reserve lowering their base interest rate. The market has been in a mixed pattern on the US dollar as it tries to best assess what will lie ahead. Cutting interest rates can lead to a weaker currency by making it less attractive for investors to hold, but this is not always the case with the US dollar.
|Currency Pair||% Change (Month)||Difference on £200,000|
Today we have the latest US Retail Sales data at 13.30 and then a speech by Chairman of the US Federal Reserve, Jerome Powell at 18.00. Last week, Powell gave some strong hints a cut would be forthcoming at the next meeting which is the 31st July of this month.
The topics of growth and inflation are the key areas which according to the Fed, might see a cut materialise. Strong employment numbers and rising stock markets paint a confident and positive picture for the future.
Following the latest meeting between Trump and Xi, at the G20 summit in Japan, the Trade Wars have not deteriorated. The two managed to reach a truce agreement. The Trade Wars do remain one of the biggest sources of uncertainty globally, with World PMI (Purchasing Managers Index) at a 7-year low, according to the JP Morgan Global Manufacturing Index.
Global growth is also being closely monitored with Chinese year on year GDP dropping to a 27-year low recently. The trade wars are an ongoing event which is affecting financial markets and the US dollar, for now the market seems to be of the opinion that despite a threat, the US economy is holding up better than other countries, hence why the US currency remains historically strong against the pound and the euro.
Sterling to US dollar are at the interbank rate of 1.25’s and rose last week, on the back of Jerome Powell hinting further at cutting rates. This saw the US dollar weaken slightly, although the rates remain very close to the best levels we have had all year selling US dollars for pounds.
With there being little available information on what Brexit will actually mean, the pound has lost ground and with little sign of a quick resolution in the uncertainty of Brexit, the market will perhaps need more news to trigger movement outside of the current range.
The 22nd July is when we will learn of the winner from the Conservative leadership campaign with Boris Johnson highly likely to be the victor. His indication to keep no-deal on the table has seen sterling lower and will be another consideration for the pound. Clients looking to buy or sell GBP/USD may wish to contact us to learn more.
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