Like most of the other major currencies, the greenback proved to be ruthless throughout last week with strong gains against the pound as Brexit uncertainty hit its peak.
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Cable did however fail to test the 1.27 mark like it did back at the end of October which suggests to me that maybe the markets were listening to the Fed’s cautious statements throughout last week.
Both Fed Chair Powell and Vice Chair Clarida alluded to a potential slowdown in global growth and a cooling off of the impact in tax cuts as reasons why the US economy’s momentum might begin to waver in the not too distant future. Although the market’s reaction might have been diluted by Brexit, there is a chance investor may begin to consider their options as a change in trend for the greenback may be beaconing. A seemingly more cautious Federal Reserve might choke investor appetite for the dollar, making it less valuable in the long run.
This all being said, with the odds still well and truly stacked against May and the pound as we start the week, I can only see the dollar becoming more expensive as the week goes on.
The release of Existing Homes Sales is expected to rebound for the first time since spring which could prove to be a significant change of trend. It's been well documented that real estate is an excellent indicator for future economic growth and a reading consistent with expectations might well draw the Fed’s caution from last week into question.
It will also be interesting to see if Friday’s PMI release reflects the Federal Reserve’s concerns. Business conditions as a whole have remained for the most part extremely positive in the States, despite the uncertainty coming from the Mid-terms and Global trade tensions. If you are looking to buy dollars with pounds, I would be tempted to consider making a move whilst the uncertainty from the Fed’s comments last week weigh on the dollar.
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