It was widely assumed that the upcoming US elections would create some volatility for the US Dollar. As it stands, it’s at a 9-month high against the Euro, 30-year high against the Pound and nearing an 8-month high against the Canadian Dollar. What is causing the US Dollar to go from strength to strength? Firstly, the US economy is in good health, employment is nearing max capacity and inflation is nearing its 2% target. John Williams – a member of the FOMC (Federal Open Market Committee) echoed these comments on Friday. A strong US economy has created a significant boost to the Dollar as investors gear up for a potential interest rate hike this side of Christmas.
With the UK’s decision to leave the EU coupled with European elections next year, the US Dollar has been the flight-to-safety currency amongst investors. As hopes of a Trump victory fade the markets and bookmakers alike have claimed victory for Clinton. Even still, clients looking to sell US Dollars back to Sterling should consider a forward contract option prior to the US election result in the event a Trump victory did emerge.
Friday’s GDP estimates for Q3 could be a deal breaker for an interest rate raise in December, which is expected to show sharp improvements from its September estimates of 1.4%. Unless we a see a significant shift in economic patterns or a Trump victory in November, GBP/USD exchange rates could be trending downwards for the remainder of the year as the case for a FED rate hike strengthens.
Whist it is not expected that Trump will win this year’s US elections, a limit order may be worth considering if you are looking to buy US Dollars. Similarly to the surprise Brexit vote in June there is every possibility markets could have it wrong again. Speak to one of our specialists today if you would like to learn more about this.
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