Exchange Rate Forecast

Exchange rate forecasts and foreign currency news

A busy week for the USD – What could influence GBP/USD rates next?

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October’s labour market – what next for US interest rates?

Yesterday it was announced that Jerome Powell was handpicked by President Donald Trump to become the next Federal Reserve Chair. The Senate will confirm whether he will actually become the Chair of Fed before February, when Janet Yellen hands over the reins.

The senate tends to be just a formality, whoever the President picks, normally goes on to secure the seat. Jerome Powell, having originally trained as a lawyer, went on to become a partner in one of the world’s largest investment banks. He is considered by many as a hawkish choice. It’s no secret that President Trump wants interest rates to be raised at a faster, more bullish pace than that of this year. The US economy will likely hike another 3 – 4 times next year and in my opinion Jerome Powell has been appointed with this in mind, strengthening the US Dollar.

However, today’s Labour market will have no doubt confused policy makers even further. Non-farm payroll data released today rebounded from a below par reading in September. The reading wasn’t quite what was expected (consensus 312K vs actual 261k) however it shows that the hurricanes in the southern states have seemingly been shrugged off. This combined with the unemployment rate dropping to 4.1% paints a positive picture for the US economy.

Or so we thought… even though people are now back in work at full capacity, wage growth data makes raising interest rates a difficult question. The data showed that wage growth was stagnant throughout October despite overall positive economic growth. This combined with below par inflation means that raising US interest rates might not be as straight forward as first thought.

Dollar remains weakened following UK GDP Data

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The dollar remains under pressure from both the Pound and the Euro at present. Yesterday GDP for the UK caused the pound to rally against a basket of currencies, including the dollar. This has led to the UK’s Bank of England potentially opening the door to a rate hike next week, however the next move for the BoE is not yet clear, I feel this is a get out of jail free card for the UK, and Mark Carney’s likely dovish tone will reiterate this in my opinion.

The ECB has had an effect on the dollar this week as it looks to cut its asset purchasing scheme today, likely to be announced from 12 BST onwards. Many investors have looked to buy European bonds ahead of the decision and as the world’s most commonly traded pair, the USD has lost ground against the Euro because of this.

Two things have the capability of moving the dollar now – data and the question over who will be the next Federal Reserve Chair. The data from the US is likely to be positive, therefore strengthening the dollar, bar the unemployment data today which is likely to have been affected by the two recent hurricanes which have impacted people’s ability to get to work.

What’s more interesting is that this same factor is yet to be felt by other areas of the economy, the US durable goods data – often seen as a measure of a healthy economy as it is long term business investment, posted healthy gains yesterday. The next release of importance is tomorrow, when GDP data is expected to hit 3.0% and more importantly opening the door to a succession of rate hikes in 2018. The next Fed Chair is also of importance – Donald Trump is likely to pick someone with a hawkish attitude regarding rates that is likely to strengthen the dollar even further when the time comes. With political uncertainty weighing on the pound, the USD has the potential to make serious inroads against sterling in the up and coming months.

Is the Australian Dollar set for a spell of weakness?

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The Pound to Australian Dollar exchange rate has been slowly creeping upwards this week, following an ease in tensions regarding Brexit on the UK side and a lack of important data that is likely to rock the AUD.

One of the few important data releases expected to affect the Australian Dollar this week is inflation data. This is due to be released in the early hours of Wednesday morning UK time. Although inflation data is set to show a healthy increase to 2.0% year on year from 1.9%, and an even healthier jump from 0.2% to 0.8% from the previous quarter, this is unlikely to move the pair that drastically. The chances of an Australian interest rate hike have been put firmly to bed and the Reserve Bank of Australia are in no rush to raise interest rates due to an extremely strong AUD at present. As the Australian economy is reliant on exports of raw materials to its largest trading partner, China, the strong AUD has started to have a negative effect on the export industry.

A hawkish US Federal Reserve is potentially negative for the Australian Dollar

The AUD has been benefitting as a high rewarding currency so far this year for traders that have been putting their funds in the AUD due to the high interest rates. However, a hawkish Federal Reserve could spell further weakness for the AUD. As the Fed are expected to raise US interest rates again before the end of the year, the US Dollar will soon be offering similarly high interest rates, which means that investors are likely to move funds out from the Australian Dollar and into the US Dollar, which is considered a safe-haven currency.

Non-Farm payroll data released tomorrow

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One of the most significant data releases in the calendar will arrive tomorrow when the US release their latest job creation data. The Non-farm payroll data release is the number of new US jobs created that month outside of the agricultural industry. This data is considered as one of the main indicators for the health of the US economy, with big numbers strengthening the US Dollar and low readings doing the opposite. There is always a prediction from analysts but so often the expectation and the reality are a long way from each other, which can create major volatility.

Along with Non-farm payroll data there will also be Unemployment data for September, however there isn’t expected to be any change from the last 4.4% reading. Average hourly earnings are expected to also remain the same so I wouldn’t be surprised if there was a strengthening for the US Dollar.

US Federal Reserve speeches yesterday

Yesterday Janet Yellen and several other members of the Federal Open Market Committee spoke. There was optimism of an interest rate hike coming at the end of the year and it’s likely it will start to be priced into the US Dollar, which could drive the GBP/USD rate down to 1.30.

Theresa May says she will remain as Prime Minister

Prime Minister Theresa May today released a statement suggesting she will not resign and is planning to stay on. After a difficult speech yesterday at the end of the Conservative party conference there were whispers that Mrs May should step down. The release today did however cause Sterling to drop as Theresa May is a known to be an advocate of a hard Brexit. If Mrs May was to resign and a new Prime Minister appointed, they may choose to move away from the idea of a hard Brexit. That may create optimism for the currency market, providing Sterling with a welcome boost.

Two Federal Reserve Speeches Tonight

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Fed Chairlady Janet Yellen and voting member James Bullard will both speak this evening in what could trigger a boost for the US Dollar to close the day.

The USD has been strengthening over the last week especially against Sterling and this looks like it could be set to continue. There is almost complete confidence that the US Federal Reserve will raise interest rates before the end of the year and some members of the voting committee are even talking of several rate hikes next year also.

In turn, with the uncertainty surrounding Sterling, the GBP/USD rate could well start to move back to the 1.30 level, if not below before the end of the year.

Optimistic PMI Data

Purchasing Managers Index data released today demonstrated that executives across the country were confident of the next few months. Specifically, companies outside of manufacturing were incredibly positive with the reading coming in significantly higher than the markets had expected.

Tomorrow four more members of the interest rate voting committee will speak and then on Friday we have the biggest release of the week, Non-farm payroll data.

The Non-farm Payrolls release indicates the number of new jobs made in the previous month. There is expected to be a significant drop from previous months, however over the last few months forecasts have been massively over exaggerated. On Friday there will be volatility correlating to whichever way the non-farm release comes out. We are also expecting unemployment data, which could well be positive considering the jobs market has been strong in the last few months.

The US Dollar is likely to make gains at the end of week with so many speakers.

The US Federal Reserve is on a hawkish cycle at the moment talking up hype of interest rate hikes in the short term. Therefore if you’re looking to purchase US Dollars then it might be worth doing so sooner rather than later.

The US Dollar starts the week in focus after rebound

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The Dollar found itself in high demand last week, performance wise it was the best week for the US Dollar so far this year.

A combination of a hawkish speech from Janet Yellen reinforcing a December interest rate hike in the US, pushing up the probability of a rate hike before the end of the year to around 70% according to polls. The other factor contributing to Dollar strength at present are President Trump’s tax plans. The projected boost from the proposed tax cuts have caused a surge of investors to buy government based US bonds, which has in turn strengthened the Dollar.

US economic data in focus this week

Following hawkish comments from Fed Chair Janet Yellen, the markets are keenly watching this week’s data releases from the US.

This afternoon’s ISM manufacturing index was much better than expected and shook off any fears that the two devastating hurricanes, Irma and Harvey would cause a disruption to these figures. The data pointed out that there is no shortage of manufacturing activity just yet. There is no shortage of data releases this week so this could be a volatile trading week for those with interest in the US Dollar. However, the ISM data today has helped to ease investors’ fears that the US jobs data would be heavily impacted by the two hurricanes. This could be confirmed with US Jobs data due on Friday.

On Wednesday afternoon, we get a raft of data including Services PMI and EIA Crude Oil Stocks change. This is then followed by a speech from Janet Yellen during the evening (UK time).

Non-Farm Payroll data due on Friday

As we head towards the end of the week Non-Farm Payroll data in the United States will be of great importance for anyone with a Dollar requirement or indeed the need to exchange any of the perceived ‘riskier’ currencies, such as the Australian Dollar, New Zealand Dollar and South African Rand. This is due to be released at 13:30pm on Friday.

With a host of Federal Reserve members speaking this week, any further hints to US policy could send the US Dollar surging even further.

On a separate note, all of the team here would like to extend their thoughts and prayers to anyone affected by the horrible scenes witnessed in Las Vegas today.

Markets await US Federal Reserve interest rate decision

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Tomorrow’s interest rate decision in the US is becoming a widely anticipated hot bed of activity, expected to cause market volatility. During 2017 there was forecasted to be 3 interest rates by the Federal Reserve and so far we have only seen two. There have been some concerns with economic data over the last few months, as inflation in the US has remained below expected levels.

Tomorrow it could become clear as to the chances of the final forecasted rate hike. Whilst there isn’t going to be a hike tomorrow Chairlady of the US Federal Reserve, Janet Yellen may be able to confirm the chances of the final hike coming this year. Should there be an indication of a hike then I would expect to see the US Dollar make gains across the board. In my opinion the GBP/USD exchange rate could drop into the 1.33’s, which would be 2 cent off the high of the start of the week.

Donald Trump Delivers North Korea Warning

President Trump speaking in front of the United Nations in New York delivered his maiden speech and took the opportunity to threaten North Korea. Trump suggested that the “Rocket man” in North Korea was on a path to suicide and finished it off by suggesting the US will destroy the dictator’s country if it needs to.

Donald Trump and Kim Jong-Un have been indirectly going backwards and forwards over the past few months. President Trump couldn’t resist the opportunity, in front of world leaders to state his dominance in the situation. He also took the chance to scorn the political governance of Iran, suggesting they’re trying to destabilise the Middle East. Whilst the speech earlier today didn’t have much of an effect on currency markets, if there was an escalation between the US and North Korea there would definitely be volatility.

GBP/USD exchange rate starting to rise

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For the first time in a long time the GBP/USD rate moved well above 1.30 this morning and nearly reached 1.31. After a weekend that looked set to see the US and North Korea come closer than ever to conflict, things seemed to have settled and money has moved away from the “safe” US Dollar. If there was to be an escalation once again then I would expect to see the US Dollar strengthen again.

There is not very much data left for the US Dollar as we approach the end of the week, so there may not be major movement from that source but things can always change. However, next week will be a different story as inflation data along with manufacturing figures will be released which could create volatility. The US Federal Reserve had originally planned one further interest rate hike this year however there are concerns that it may not happen now. Economic data was strong at the start of the year for the US but over the last few months that has started to wobble.

There has been a slowdown with inflation, last month was the first in 6 months that it didn’t drop. Whilst economic performance with regards to jobs and unemployment had improved, falling inflation suggests this won’t continue. Having made changes to help boost the economy, Donald Trump and the Federal Reserve will need inflation to pick back up in order to see progress. President Trump has made several changes to economic policy to accommodate business growth and if there isn’t any sign of results he could well find himself under pressure.

Next week if we do see inflation fall again then we may see the GBP/EUR exchange rate moving back towards 1.32.

The Dollar is firmly in focus

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Both politics and economics are driving the dollar’s value at present. Donald Trump has once again caused a stir with his comments yesterday following a decision to back up his original stance on the Charlottetown disturbance, by stating there was ‘blame on both sides’. His comments haven’t been well received; many politicians including several fellow republicans have let their thoughts be known that far right groups should never be condoned. Many world leaders, including Theresa May have made it clear that far-right groups should be condemned. I think this could potentially spell trouble for the President with so many opposing the comments he has made.

Since the beginning of the day, the USD has given up the gains that it made yesterday following better than expected retail sales figures. Yesterday’s data helped to increase the chances of a rate hike in the US before the end of the year which is why the dollar strengthened considerably throughout yesterday’s trading.

Housing market data released today

Today however, housing market data was released and showed an unexpected drop in July. As building new dwellings is often seen as a key barometer to the economy, the dollar subsequently lost ground. Better than expected wage growth data and unemployment data for the UK helped to push GBPUSD back up from the 6 week low from yesterday.

Future data released to take note of

The key data is yet to come. Tonight, the Federal Reserve (FED) will release the minutes from their latest Federal Open Market Committee meeting, which should give an insight into the course the FED will take regarding raising interest rates. I would expect this event to cause significant volatility on USD exchange rates.

Large swings on Cable exchange rates

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Today was a good day for any clients currently holding on to USD to buy foreign currency. Analysts’ eyes were firmly focused on today’s US retail sales figures. June consumer spending figures dropped by 0.2%, however today’s figures helped to put minds at rest that the US economy wasn’t slowing down. In fact, retail sales showed a healthy increase of 0.6% from the previous month. This is welcome news as investors try to figure out the FED’s next move.

A strong retail sales figure today has helped turn attention away from the weak inflation data that dampened the idea of an interest rate hike anytime soon, and helped to give USD a welcomed boost. I personally think the US will start to look at raising interest rates around December time if the positive data surrounding retail sales continues to show economic growth.

How is the UK economy effecting cable rates?

This came after the pound took a hit in early morning trading following a stagnant inflation reading. A weaker pound following Brexit has meant that inflation has been steadily rising ever since, however there have been recent reports that this fallout from Brexit has been fully passed on to the consumer, and that inflation will now start to stagnate. This is damaging for the pound because it means that an interest rate cut for the UK is off the cards for the foreseeable.

Not only is economic data disappointing for the UK, but the Brexit negotiations are a complete wildcard, in that no one knows what is around the corner which is causing doubts in investors’ mind and ultimately proving Sterling negative.

All in all, today has seen the Pound fall by 0.76% against the US Dollar, which highlights the current volatility in the Market. Tomorrow, average earnings and unemployment data is released for the UK and if this signals a further strain on households living standards, I would be surprised for GBP/USD to test the 1.27 barrier.

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