US showing signs of contraction

The US this afternoon released contracting data that was expected to show a small decrease in activity; however the expected figures and what was released are significantly different. Furthermore the Producer Price Index which indicates the change in the costs faced by producers was also down.

These statistics indicate the movements for the inflation levels and contractions suggest that the country is not moving forwards.

Strong job data may be short lived

The US has released positive jobs data this week which and the momentum created from that data may have been short lived. The US Federal Reserve is currently sat on the fence with regards to increasing interest rates in the US. There has previously been talk of 4 interest rate hikes since the end of 2015 and so far we have seen 1.

Janet Yellen who is the Chairlady for the Fed has been keen to see unemployment decrease before considering further movements.

The recent positive job reports would have certainly got investors excited knowing Yellen is focusing on the employment level. However Yellen has always been one to stutter on a decision if all the factors are not perfect and poor Retails Sales will certainly be in her mind.
The US election is only just around the corner and it’s rare that a central bank will act before there is market changing factors to consider. Especially as Trump and Clinton have both revealed very different economic policies.

In my opinion in the next few months I believe the GBP/USD rate could move back into the mid 1.30’s. If it looks plausible for a Trump victory and he is in the running at the final decision then I have no doubt of major volatility that could work against the US Dollar. However in the short term rates will likely remain 1.30 bound with more concerns over the UK’s housing prices.