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US Dollar Knocked Back from Best Levels as Investors Fear Potential Currency War

Last week’s high: $1.3289

Last week’s low: $1.2965

Pound Recovers from Lows Versus US Dollar on Trump’s Concerning Comments

Foreign exchange markets were shocked by the latest developments in the US-China trade dispute on Friday, leading to a US Dollar (USD) selloff and helping the highly unappealing Pound (GBP) to recover slightly from its worst levels.

For most of the week, investors had been selling the Pound due to concerns about UK Prime Minister Theresa May’s ability to push her Brexit plans through Parliament. May has seen divisions within her own party over Brexit, worsening fears that a worst-case scenario ‘no deal’ Brexit was likely.

Sterling only became less appealing when Britain’s June inflation and retail sales results were published. All major prints came in well below forecasts and weighed on Bank of England (BoE) interest rate hike bets.

However, the US Dollar was unable to capitalise on Sterling weakness, as at the end of the week the US currency was sold in reaction to some surprising comments from US President Donald Trump.

Trump seemed to criticise the strength of the US Dollar compared to the weakness of the Euro (EUR) and Chinese Yuan (CNY). On top of this, he criticised the Federal Reserve for hiking US interest rates. Overall, the comments made investors anxious about the possibility of a currency war, as well as making observers anxious about the Federal Reserve’s independence.

USD Outlook: US Growth Results in Focus amid Lack of UK Data

The UK economic calendar will be a little quieter next week, with the only prints of note due for publication being the Confederation of British Industry’s (CBI) latest business reports. As a result, Brexit developments and key US datasets will be the most influential factors in GBP/USD movement.

A slew of US data will be published throughout the week, including home sales data on Monday and Wednesday and Markit’s July PMI projections on Tuesday. This will give investors a better idea of how the US economy is currently performing amid trade protectionism concerns.

However, the most influential US data next week will be published on Friday in the form of the latest US Gross Domestic Product (GDP) numbers. US growth figures for Q2 are expected to show a notable improvement over Q1, so if the data misses forecasts GBP/USD is more likely to advance.

Investors are likely to remain anxious about Trump’s recent comments about the US Dollar and Federal Reserve too. Any sign of escalation to a potential currency war could lead to further USD weakness.

Key Events

23rd July

13:30 US Chicago Fed National Activity Index

15:00 US Existing Home Sales

24th July

11:00 UK CBI Industrial Trends Orders

14:45 US Markit PMI Projections

25th July

11:00 UK CBI Business Optimism

15:00 US New Home Sales

26th July

13:30 US Durable Goods Orders

13:30 US Wholesale Inventories

27th July

13:30 US Growth Rate

13:30 US PCE Prices

15:00 US Michigan University Consumer Sentiment

 

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To keep up to date with the US Dollar, visit the USD blog in our Currency News section.

Arron Morris
Senior Currency Broker
T: 01442 892 065

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