As uncertainty continues following the Referendum, investment continues to pile into the safe-haven status of the US Dollar. It's likely that GBPUSD exchange rates will remain on the lower side for some time.
The cost of buying the USD has been relatively range bound over the last 14 days sitting between 1.30-1.33. With so much uncertainty in the global market at the moment and so many people trying to second guess the impact of the UK leaving the EU there has been a run of safety into the USD, pushing up its value and making it more expensive to buy. Buying the US Dollar currently sits close to a 30 year low.
Moving forward I generally don’t expect rates to climb back over 1.40 any time soon and in fact, I expect GBPUSD levels to fall under 1.30 again before we see it over 1.40.
On the release front, it is a quiet start to the week and it will probably be the UK data sets which dictate market movement for the GBPUSD pairing. UK Unemployment data on Wednesday is a risk for anyone with USD to buy as there seems a much bigger downside than upside if data is poor, resulting in the GBPUSD most likely becoming more expensive. Therefore, if you do have US Dollar to buy, even with rates being so low I personal expect rates at the beginning of the week to be higher than that at the end of the week.
There has been a lot of speculation over the last 8 months about when the US will raise interest rates again. Following political and economic data from the US slowing earlier this year the expectations changed. These then changed again as concerns mounted about the economy in China. The latest reasons for no change is the uncertainty which has been created following the UK’s decision to leave the EU.
The fundamentals, economic data for the US which needs to be in place before considering outside factors, are however again not in the right condition. Inflation within the US has shown slowing, wage growth in particular has been relatively low and many believe this will need to increase before the FED can consider raising interest rates again.
Equally many believe that the political future for the US with their election could have an impact. Even though the FED and government are supposed to be impartial it is seen that a well-regarded political leader in Hillary Clinton may settle the markets, whereas a more ‘wild’ and potentially ‘uncalculated’ leader in Trump may result in a different financial policy needing to be implemented. In either case I personally think that the FED will resist raising interest rates until at least the end of the year until the worlds future is more certain.
This in turn could have a negative impact on the credibility and therefore weaken the dollar making it cheaper to buy, however this I expect will be months away potentially rather than weeks. There will be opportunities for US Dollar buyers and sellers with a number of upcoming events such as the US presidential elections. Speak to our brokers today to find out more on 01494 725 353.
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