Federal Reserve keep rates on hold
The Fed have decided to make no change in interest rate levels, they will remain at 2.5%. The statement accompanying the decision had a dovish tone and caused a slight weakening of the US dollar against sterling. The word “patience” was removed from the statement and seems a rate cut could be on the cards. Fed chair, Jerome Powell has hinted at a potential cuts during 2019.
Powell has mentioned concerns regarding the US/China trade war. There has been a fall in business investment and there have been signs of a global economic downturn. The expensive Dollar is also not going to help exports as investors seek safe haven investments such as the greenback. All of which fuels talk of an interest rate cut.
Despite this I believe the lack of clarity surrounding Brexit and having no PM in place will keep the pound fragile. Short to medium term we could expect further losses.
Factors affecting Pound vs US Dollar exchange rates
The Bank of England (BOE) comments have been dovish of late and the UK’s growth forecast has been lowered which does not bode well for sterling exchange rates.
The US/China trade war is set to escalate, and this has the potential to cause further US dollar strength as investors continue to move to USD for security.
Keep an eye on today’s services and manufacturing data from the US for May. A positive reading could cause US dollar strength.
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