This report will examine the factors that could affect exchange rates this week in order to help you stay informed if you need to make a currency transfer. The table below shows the difference you would have received in US Dollars when buying £200,000 at the high compared to the low for the past month.
|Currency Pair||% Change||Difference on £200,000|
Donald Trump is facing some key political tests as he seeks to implement a wide range of tax cuts and also attempt a deal with Republicans to avert a government shutdown before the end of the December. Such issues have seen the US dollar weaker overnight and in 2017 generally as the high expectations which had previously helped the US dollar to remain strong, melt away.
Termed the ‘Trump trade’ the US dollar had been bolstered by the belief Trump would implement a series of measures to streamline the US economy. So far he has struggled and the US dollar has lately fallen to lows against the pound not seen since around the time of the EU vote 18 months ago.
Tomorrow at 13.30 pm sees the latest US GDP data which may have some bearing on the prospect of the US raising interest rates. This key topic has been underpinning US dollar strength for the last few years. Typically raising interest rates strengthens the currency concerned and this explains why the greenback has risen strongly against all currencies in the last few years, well above historical averages.
Key developments this week see a series of Fed speakers and Janet Yellen, outgoing chairlady of the Fed, also speaks. Her replacement Jerome Powell who takes over in February is seen as a steady hand. In a testimony to Congress yesterday he hinted at a further US interest rate hike on the 13th December when the Federal Reserve next decide US interest rates.
Markets have priced this in to a very large degree and the surprise would be if between now and then some worrying economic data implied hiking interest rates was a bad idea turned up. Such news would see the US dollar weaken.
The US interest rate decision is December 13th just ahead of the EU Summit which will be pivotal for sterling exchange rates. Potential outcomes could see GBPUSD climb much higher to the higher 1.30’s should the Fed not raise rates and the pound find favour after the EU summit. A hawkish (strong) Fed and poor outcome from the EU summit however could see us back to 1.30 or even lower.
As if all of these elements were not enough to keep you alert for any US dollar trades, there is still the outside chance of nuclear war emanating from North Korea. Reports from Pyongyang stated a test ballistic missile was launched yesterday, allegedly capable of reaching the entire United States. Overall an increase in such tensions will see a stronger US dollar since as a safe haven currency, investors will increase their share to hedge (guard) against risk elsewhere. Trump has tweeted he will ‘take care’ of any such situation which may only raise the stakes of such a scenario further.
Buyers of US dollars should note that they are only 1 cent off the best rates to buy the greenback with pounds since the Referendum vote. US dollar sellers might be at some of the worst levels since the vote but these levels are some of the overall best in 30 years.
For more information on how future data releases could affect your USD requirement, call our trading floor on 01494 725 353 or email me here.
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