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Trade Tensions and the BoE Rate Decision in the Spotlight for US Dollar

Last week’s high: $1.3441

Last week’s low: $1.3214

Trade Tensions, Consumer Price Inflation and a Hawkish Fed – GBP/USD in the past week

Last week was a big one for the US Dollar, with investors rushing to respond to a surge in US consumer price inflation, a hawkish (but predictable) rate rise from the US Federal Reserve and by the end of the week; a fresh batch of US trade tariffs on Chinese goods.

Combined, this news saw GBP/USD trading sideways until Thursday, which saw the pairing tumble to the weekly low of $1.3214.

The most notable news was, of course, the US Fed rate decision, with Fed Chairman Jerome Powell announcing a rate hike and asserting that, given the strength of the US economy, two more rate rises this year should be expected.

‘The decision you see today is another sign that the US economy is in great shape’, Mr Powell stated in the press conference following the meeting. ‘Most people who want to find jobs are finding them.’

Because this was already priced in by the markets, however, the news had a limited and slightly brief effect on GBP/USD.

In respect to trade, on Friday the Trump administration approved a further $50bn in tariffs on Chinese imports, with China quickly announcing its intentions to respond.

Fearing a trade war, this news destabilised global markets and allowed GBP/USD to claw back some of its losses.

This Week for GBP/USD: US PMIs and the Bank of England (BoE) Rate Decision Ahead

With the US rate decision out of the way investors will now be turning their attention to the US-China trade situation, the Bank of England’s (BoE) June rate meeting and a raft of US purchasing managers’ index (PMI) releases at the end of the week.

The BoE rate decision is not due until Thursday, and whilst a rate hike is not currently expected, there is still the possibility that the Monetary Policy Committee (MPC) will lay the groundwork for a rate rise in August.

Indeed, the UK’s labour market continues to move from strength to strength, and a marked recovery in Q2 economic growth – up from the slump in the first quarter – has steadily raised the odds of a rate hike in the eyes of economists.

If the bank does prove hawkish in their accompanying statement then we could see the US Dollar come under pressure.

For the first half of the week trade will likely dominate headlines, with investors liable to step cautiously around the ‘Buck’ due to concerns regarding tariff repercussions from China, the EU, Mexico and Canada – even if, combined, these tariffs will not have a notable effect on US GDP.

Key Events

18th June

15:00 NAHB Housing Market Index

19th June

12:00 Fed Bullard Speech

20th June

13:30 US Current Account Q1

14:30 US Fed Chair Powell Speech

21st June

12:00 UK Bank of England Rate Decision

13:30 US Jobless Claims

13:30 US Philadelphia Fed Manufacturing Index June

22nd June

14:45 US Markit PMI Readings June

 

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Arron Morris
Currency Trader
T: 01442 892 062

 

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