US Dollar Weakens After Growth Downgrade

By Simon Eastman

This week we have seen a complete lack of key UK data to go on following the Bank Holiday on Monday, but sterling has continued to hold firm at near peak levels.

Against the single currency euro, the pound having fallen over the early part of the week, managed to claw its way back up to near peak levels we have seen a handful of times over the past couple of years. With a lack of any data for traders to go off for the UK, and some low-level EU figures hitting expectations the rates have stabilised out, trading within a small range.

Yesterday EU economic sentiment figures missed expectations marginally, and today we have German retail sales and EU inflation figures playing off against UK consumer credit, a much lower-key release. As such, we could see some volatility depending on how the European inflation figures fare. Higher than expected and we could see traders price out the expectations for an interest rate cut for the Bloc, meaning those euros will more than likely get more expensive to buy. If the figures come in lower or as expected, its unlikely to have much impact as a cut mid-year is already expected ahead of the UK.

Cable saw further gains yesterday as the Bureau of Economic Analysis downgraded the US growth figure for Q1, which followed a near 0.5 percent loss on Wednesday. Those losses were paired back as despite the negative sentiment from US data, the dollar is still seen as the number one safe-haven currency and with negative views of markets, seemingly some investors are happier to hold dollars than not as they hedge their portfolios against turbulent times. Saying that, the pair moved another near half a cent over the course of Thursday, and we have US inflation readings this afternoon, alongside Canadian GDP figures for any Loonie buyers out there.

If you have sterling in hand and any currency to buy, but specifically euros or dollars, in the coming weeks or months, now could be the opportune time to take advantage of the pound as it rides high. As regular readers will know, the rates can change dramatically and quickly, so locking in the rate on a forward contract for example may be prudent to take that risk out and bring certainty to the cost of your overseas property purchase.

As the month closes out, June will bring further data and speculation around interest rate cuts, and with the UK election getting ever closer, political uncertainty may start to come into play. With that in mind and various options available to buy your currency to avoid the risk, speak to one of the team today for some friendly guidance.