Market sentiments improve off the back of positive US data, the question still remains as to whether the FED will hike rates next month.
We have seen some big swings in the GBPUSD rates over the last few trading sessions. This kind of choppy trading is typical when there is continued speculation about big economical events; this not just being the UK referendum in just over a month, nor is it about the US election, but the potential for an interest rate hike in the US next month. Monetary policy is the main driver for investors’ behaviour and there is so much uncertainly over what the next move may be from the Federal Reserve (FED) with regards to interest rate change.
Recently US data has been improving which in turn has increased the probability of a FED interest rate hike next month resulting in the USD becoming more expensive; this will be the main talking point moving forward for anyone with USD to buy. Data only released on Tuesday showed the biggest rise in US Consumer Prices in more than three years in April, housing data and Industrial Production were also strong.
Yesterday evening FED meeting minutes suggested that a hike could happen next month and highlighted their thoughts that the market has yet to price this in. As a result expect the Dollar to become more expensive in the coming sessions.
I personally expect GBPUSD rates to be range bound between 1.44-1.47 until the end of the month. Be very aware however that if we do see a FED interest rate hike, however unlikely, it would probably result in the USD becoming significantly more expensive. This changing forecast should be at the forefront of anyone’s mind who is looking to buy the USD.
This afternoon, in the short term, focus will be on the US releases including unemployment data and manufacturing information. US manufacturing production bounced back in April, rising for the first time in a 3 month period as demand for the auto sector picked up. Factory output has also shown improvements recently which all points towards the view that today’s releases will follow suit. Both are expected to see improvements resulting in the USD probably becoming more expensive still to buy.
With markets changing daily, it helps to have a broker who understands these changes and how they could impact your requirements. Call our trading floor on 01494 725 353 or email me here for more information.
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