Getting the best exchange rate can be achieved by understanding what is driving rates and the service of a specialist currency broker. Below are movements in just a week affecting USD rates when buying £200,00:
|Currency Pair||% Change||Difference on £200,000|
Sterling climbed to its highest level against the US dollar since June 2016 on Friday and further improvements can not be ruled out. A combination of a weaker US dollar and a much stronger pound has triggered the move, mainly due to the likelihood of the UK raising interest rates. I do not think we will be seeing an interest rate rise anytime soon but if there is a possibility the market must take stock of it, hence the Sterling rise. The US dollar has been weaker as the concerns over the costs of Hurricane Harvey and Irma come to light. With estimates in the $150-$200 bn range there is a huge cost to the economy, this could influence Unemployment data and also GDP. Further weighing on the US dollar were last week’s Retails Sales data on Friday which were a little worse than expected.
Wednesday evening at 7pm UK time, the Federal Open Market Committee holds their latest US Interest rate decision. It would be very surprising to see any change in interest rates but the release could see a busy time for the US dollar as the Fed is expected to announce a start of reduction of its balance sheets.
Also known as QE (Quantitative Easing) the Fed bought large quantities of Treasury bonds and mortgage backed securities to stimulate growth in the US economy. Having stopped buying them up in 2015 the total asset purchase stands at $4.4 trillion. It is very difficult to predict how the market will react but it would not be surprising to see the US dollar strengthen. This is on the basis that as QE weakens a currency by increasing the money supply, withdrawing it should strengthen the currency. By putting the US economy on a path of normalisation the Fed could increase confidence in the greenback and GBPUSD could fall.
The gains for the pound against the US dollar could also easily be undone on Friday when Theresa May will deliver a speech in Florence, Italy on Brexit. Previous much anticipated speeches on Brexit have been market movers.
With so much going on last week it is easy to forget about a further North Korean missile launch last week. GBPUSD will remain at the mercy of such events but with the market becoming accustomed to the risk, the US dollar failed to react. Any major escalation in the tensions could of course trigger a major reaction.
With the Fed potentially looking to raise interest rates in December and the US economy powering ahead, the prospect of the US dollar rising and remaining strong seems high. Wednesday’s meeting will be key to determining the next path. Longer term Brexit uncertainties are still a concern for me and I think for clients buying US dollars with pounds locking something in on the gains later is sensible as longer term I would expect the US dollar will fight back again.
Thank you for reading today’s US Dollar report, I would greatly appreciate any feedback you have and would take pleasure in replying personally. If you have any questions please feel free to get in touch on 01494 725 353 or email me here.
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