Encouraging US data fails to inspire further gains in the greenback
Yesterday was a day of solid economic data from across the pond, yet the buck could not catch a bid. From robust jobs growth to impressive manufacturing numbers – it’s clear the US economy is still performing well, regardless of any uncertainty caused by trade tensions. Taking a step back and trying to understand why the US dollar is losing steam, one can identify a clear reason. Expectations for future interest rate hikes are noticeably decreasing. Tame inflation mixed with increased volatility across financial markets appears to be lowering the Fed’s appetite to be so aggressive on tightening policy. This has become more than apparent from recent Fed speak, the latest being comments from the Fed’s Bostic yesterday, stating that the central bank is within ‘shouting distance’ of the neutral rate of interest. We may well be on the verge of a ‘pause’ in tightening. What does this mean for the greenback – possible tough times ahead. However, dollar buyers shouldn’t get too excited, it’s a safe haven currency which will soon yield circa 2.5% interest. It’s an attractive currency to hold.
Speaking of attractive currencies, next week will be a big one for the pound. It’s not looking very attractive at present but this ‘May’ change next week. Debate continues in Parliament but the main focus will be on Tuesday’s vote and what happens in the following days. Please speak to your FX dealer here at Cornhill to ensure your business is not exposed to an adverse outcome.
Today’s highlight is the jobs report from the US. The number will cross wire at 1330 and could ensure we close the week off with a dose of volatility. Enjoy the weekend.
Written by Vivek Savani. 8:50am, December 7th 2018
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