Currency Market Update November 19th
The US Dollar
The Pound has finally ended its strong run of form, against the Dollar at least. Since its peak on 26th September the pound has lost more than 6% against a resurgent Dollar. Much of this can be attributed to the US election with the US Dollar recovering significant ground across the board. With President Elect Donald Trump gaining control of the White House and the Republicans gaining full control of the senate investors now believe Trump will enact the tax cuts and tariffs promised in the election campaign.
While those policies are designed to boost domestic growth, they risk ramping up inflation which in turn could keep U.S. interest rates far above those of other countries. Higher rates raise the dollar’s allure to investors. In his latest speech Fed Chairman Jerome Powell, has already cast a shadow of doubt over a further interest rate cut in December by pointing out that the economy is doing great and the job market is looking healthy.
The Pound
At the same time, here in the UK, data showing disappointing growth during quarter three has put the possibility of an interest rate cut in December back on the table. US and UK interest rates are currently at a similar level. The expectation had been that UK interest rates would end the year higher than the US. It now looks like the opposite will be true and this helps explain the continued downward trend we have seen in the GBP/USD rate in recent weeks.
The poor UK GDP data has also led to the pound giving up some modest ground against the Euro although it still remains 4% higher than where we started the year with the Euro facing continued pressure.
The Euro
The Euro has struggled across the board but has lost significant ground against the Dollar with concerns the afore mentioned tariffs Trump has threatened will hurt Eurozone exports and stifle growth. Fears of a trade war arose when Trump mentioned, during his election campaign, that the euro bloc would "pay a big price" for not buying enough American exports.
The European Central Bank (ECB) cut interest rates for the third time in October and made it clear that further easing is coming given the weak economic backdrop and diminishing price pressures. The market is currently pricing in a further interest rate cut in December with the debate around the size of the cut rather than if there will be a cut, which will likely keep the Euro under pressure as we see out the year.
Key Economic news this week
Wednesday 20th November
GBP - CPI
Thursday 21st November
JPY - BOJ Gov Ueda Speaks
AUD - RBA Gov Bullock Speaks
USD - Unemployment Claims
Friday 22nd November
GBP - Retail Sales, Flash Manufacturing & Services PMI
EUR - French & German Flash Manufacturing & Services PMI
CHF - SNB Chairman Schlegel Speaks
CAD - Core Retail Sales, Retail Sales
USD - Flash Manufacturing & Services PMI
The PathFinder Team
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