The FED have decided to keep Interest rates on hold citing the EU referendum as a major concern. In the event the UK left the EU, could the US Dollar strengthen off the back of its safe haven status?

USD trading at a 2 month high versus the Pound

The uncertainty surrounding the UK’s political future has benefitted the US Dollar quite considerably recently, with cable losing 4 cents over the past week. This trend of USD strength is actually cable specific as the greenback has been coming under pressure lately, as the Fed has been apprehensive to increase Interest Rates whilst the UK and Europe’s future is uncertain. At the same time the USA’s political future is preparing for its own set of uncertain times as the frontrunners for the Democratic and Republican political parties are now clear.

Many analysts have suggested that a Trump victory could negatively impact USD exchange rates so I’ll be interested to see how the election process unfolds.

Late last night the FED Reserve kept interest rates unchanged, with FED Chairlady Janet Yellen citing fears over a ‘Brexit’ as one of the reasons for the decision, although it was made clear that there are still plans for 2 further hikes this year but we were given no indications as to when. The Bank of Japan has also opted to keep rates unchanged and this morning both USDJPY and GBPJPY are down well over 2%, which just highlights the uncertain times we’re currently in.

USD set to benefit from Safe Haven status?

Irrespective of the lack of movement regarding interest rate hikes I’m expecting the Dollar to benefit from the uncertainty surrounding Europe, particularly if the UK votes to leave. As nervous investors take their funds out of GBP and EUR I expect the greenback to be the major benefactor as a UK exit is unlikely to have a long term negative impact on the US economy in my opinion, whereas the same cannot be said for the UK and Europe.

The week ahead for the US dollar

Today at 1.30pm there is a plethora of data to come out of the US, with Initial Jobless Claims, Consumer Price Index figures and the Philadelphia Fed Manufacturing Survey for June being the highlights of the day.

Then next week on Tuesday Markit Services PMI for June is set for release which will offer us an idea of business conditions in the US.

I’m not expecting news releases to affect exchange rates considerably unless there are some major shocks, and I expect the anticipated outcome of the EU Referendum to continue to drive exchange rates across the board.

Do you have a US Dollar requirement? The EU referendum has created volatility across the markets and it could be useful to speak with one of our brokers to discuss your options. Call our trading floor on 01494 725 353 or email me here for more details.


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