In recent weeks the US dollar has been going from strength to strength against the euro and US dollar, even though it was only weeks ago when many market analysts were suggesting that the US is heading for a recession. USDEUR interbank rates have risen to a 20 month high and USDGBP has increased to a 9 week high.
|Currency Pair||% Change (Month)||Difference on £200,000|
US Gross Domestic Product (GDP) numbers released on Friday surprised the currency markets as the numbers were released at 3.2% compared to the 2% expected. Many forecasters were suggesting the longest Government shutdown in history coupled with the ongoing trade war negotiations would have had a major impact on growth however this never materialised. In fact, the US economy actually posted its best start to a year in four years.
In recent months the Federal Reserve (Fed) have been giving dovish press releases and they cut their interest rate hike forecasts from 2 to 0 for 2019. However Central Banks around the globe have adopted a similar approach as the Federal Reserve in regards to keeping interest rates on hold or even making cuts. Therefore, investors have started to flock to the US dollar once more and this is why the US dollar has strengthened.
This week both the Federal Reserve and Bank of England (BoE) will release their interest rate decision on Wednesday and Thursday. Even though the Federal Reserve has cut their interest rate hike forecast and has been dovish in recent months, now that GDP for the first quarter has exceeded all expectation, it may be difficult to see how the dollar could devalue off the back of this decision on Wednesday evening. However, the same cannot be said about the Bank of England’s interest rate decision on Thursday.
No changes to interest rates are expected however some expect the Governor to continue to state the bank will react to Brexit and as Theresa May and Jeremy Corbyn have failed to come to a compromise the pound could be trading lower against the US dollar come the end of the week.
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