The USD interbank rate moved temporarily back below 1.22 against the Pound during yesterday’s trading session in response to Boris Johnson's announcement of his request to dismiss Parliament from 9th Sept – 14th October however this move was shortlived and we open back above the interbank level of 1.22.
The USD remains historically strong against most currencies despite an economic cooling in the United States as global tensions including Brexit disorder and ongoing Trade Wars between the US and China fuel demand for the USD as a safe haven currency.
The latest twist in the Trade Wars follows on from last Fridays additional 5% increase in tariffs on Chinese goods. Trump revealed on Monday this week that this had led to Chinese officials making contact with the relevant US officials to “get back to the table” and discuss. This was seen as a positive indication that the trade stand off between the two nations may have cooled however, it appears that this was not only news to the rest of the world but also the Chinese, and therefore the boost to US Stocks was shortlived and the hostility between the two countries continues.
Eighteen months in to the trade battle with President Donald Trump and the US has so far imposed tariffs on $250billion of Chinese Goods and China has retaliated with tariffs of its own of around $110billion on US imports.
Will the Fed be forced to cut interest rates further?
US GDP second estimation for Q2 is this week’s main release from the United States and is expected later today. Market expectations are for the figure to be revised downward to show an annualised reduction in GDP to 2pc from the previous 2.1pc.
When drilling down in to the recent economic data releases from the US ‘hard-data’ such as Retails Sales and unemployment have been positive whilst forward-looking figures such as Business Sentiment and spending forecasts paint a more pessimistic picture. This leaves the US Federal Reserve with a difficult balancing act on monetary policy.
Following their first interest rate cut in a decade on 31st July there is continued pressure on the Federal reserve to consider more cuts in order to fuel further spending and ultimately economic growth.
The Fed was divided in July over what to do with interest rates with several policymakers opposed to cutting rates while at least two favoured a more aggressive 50 basis point cut. Look out for further speculation on monetary policy on the run up to their next policy meeting 17th-18th September.
Despite the commentary around a shift in fortunes for the US economy and the ongoing impact of the Trade War the USD remains strong as the ‘risk-off’ sentiment dominates foreign exchange markets around not just the US uncertainty, but also that felt in Europe and the UK.
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