Further complications for the UK and its Brexit plans has pushed GBP USD exchange rates to record lows of 1.21. Sterling could have much more than Brexit on its case for the remainder of 2016.
US interest rate hike in December more likely
Following the FED minutes on 21-22 September, members raised the argument that a US hike was needed “relatively soon”. FOMC members remain split as to when a hike is appropriate but December looks to be where investors are placing their bets. With the upcoming US elections in November, just days after the FED interest rste decision, a decision will likely be made to keep rates on hold until market jitters settle from the political uncertainty.
That being said, as long as economic data continues to shine for the remainder of the year, a hike could materialise in December possibly weeks before Theresa May triggers Article 50, another political event likely to weaken Sterling.
Economic data this week to impact odds of a hike
Today’s initial jobless claims outperformed market expectations and could set the way for strong unemployment data in the weeks ahead. Tomorrow’s US retail sales need to pick up from its falling expectations. Both figures for August and September took a dive and with the run up to Christmas, the FED need to be confident that consumers are willing to spend before they change monetary policy.
Following Friday’s retail sales, Yellen’s speech will be watched with scrutiny by markets for further hints of policy changes. Whilst November remains an unlikely time for the FED to act, it should not be ruled out entirely ahead of the US elections.
GBP USD exchange rates to fall to 1.10
Brexit continues to weight heavily on Sterling and as further details emerge regarding the complexities of an EU-exit, the Pound may continue to fall as we approach the US elections. With the potential for a FED hike before the new year coupled with deadlines for Article 50, we could see GBP USD exchange rates fall to 1.10 possibly lower.