The US economy continues to post impressive numbers and whilst this strength has helped support the USD throughout the first three quarters of 2018, have we finally seen the economy reach its peak?
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Whilst President Trump would point to unemployment levels being at their lowest in nearly half a century, and economic growth for 2018 likely to be around 3%, the recent nosedive in the US stock market has left many scratching their heads.
Whilst the stock markets are not directly linked to the currency markets there could certainly be a ripple effect which could cause issues for the USD in the coming weeks, if indeed they prove that the US economy may have now reached its peak.
It has been argued that Trump’s tax cuts were not well timed, whilst growing debt and slowing economic growth in the rest of the world, were also taken into account as the reasoning behind the sharp sell-off.
Looking at the greenback's current levels, particularly against GBP and to some extent the EUR, you could certainly argue that the downside risk outweighs the potential upside gains.
Despite the USD moving back towards 1.31 against GBP over the weekend, I would be surprised to see a move back under 1.30 this week, unless we see a major breakdown in Brexit talks.
In fact, I feel it is more likely that we will see the pound make further gains, even back towards 1.35, should a deal be agreed between the UK & EU over the coming days.
The escalating trade war between the US and China has been well documented over recent weeks, but where does the current standoff leave the two economies and the global markets?
Despite the US economy seemingly withstanding any real downturn until now, last week’s stock market crash can be attributed to some extent to the dip in global confidence it has caused.
Despite both sides saying, they will “probably” meet at next months G-20 summit, no real progress has been made to resolve this potentially destructive situation.
It is now clearly having an impact on the global markets, which have slowed as a result.
What this means for the USD is not entirely clear but some will argue it could even help solidify its position, as global fears force investors to sell-off their riskier assets and move funds back into the trusted greenback.
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