The US dollar has been holding up relatively well against its major currency pairings, including throughout the course of yesterday after a mixed set of US economic data was released.
US Retail Sales showed a vast improvement in July at 0.7% compared to the previous months reading of 0.3%, demonstrating a strong spending pattern despite fears over the US economy heading into a recession. However, Initial and Continuing Jobless Claims both rose compared to the previous week, and importantly the Philadelphia Fed Manufacturing Survey painted a bleak overview of Manufacturing conditions in August. Manufacturing makes up around 12% of the US economy, and the latest figures showed productivity falling at its fastest pace in almost 2 years.
According to Reuters, financial markets have fully priced in a 25 basis point cut to rates at the Federal Reserve’s next Interest Rate decision meeting on 17-18th September, following from it’s first cut in a decade last month, however there is also the potential for a 50 basis point cut.
Some of the main factors which have been cited by the Federal Reserve to its aggressive policy changes include the impact the US-China trade war is having on the US economy and the slowdown of the global economy.
It is worth noting that on Wednesday this week, the US Treasury Yield curve inverted for the first time since June 2007, which in turn triggered a mass stock market sell off. This has created concern amongst investors as an inverted curve has historically been an accurate predictor of a looming recession.
There are plenty more economic data releases expected today including Housing Starts and Building Permits data at 1.30pm, followed by Michigan Consumer Sentiment Index for August at 3pm. This is a survey measuring consumer confidence in economic activity, and is expected to fall from 98.4 to 97.2. We could see US Dollar weakness if this data is released lower than expectation.
The next key release to look out for next week is on Wednesday, when the Federal Open Market Committee will release its minutes on Wednesday evening. These minutes can provide a clear guide to the changes to future interest rate policy, so we could see volatility for US Dollar exchange rates around this release.
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