It has been a tumultuous couple of days for the US dollar, which has been buffeted around on global volatility in stock markets and some comments from Chinese President Xi. In a speech marking 40 years of economic reform, Xi Jinging launched a thinly-veiled attack on America’s policy of slapping tariffs on Chinese imports. He said: “No one is in a position to dictate to the Chinese people what should or should not be done.” At the same time, a 500-point plunge in the Dow Jones Industrial Average stock index – which takes it into correction territory – saw investors scurrying to safe havens, boosting the value of the US dollar in the process.
POUND LIVE: LATEST GBP STERLING MOVEMENT HERE
It was a different story yesterday when the Empire State Manufacturing Index posted some disappointing figures indicating the US manufacturing sector may be running out of steam and putting pressure on the US dollar.
Hours later however, the US dollar bounced back against the pound when Labour leader Jeremy Corbyn spoke of tabling a motion of no-confidence in Theresa May.
This momentarily alarmed Sterling traders who feared more Brexit turmoil.
Markets are now waiting for tomorrow’s interest rate decision by the US Federal Reserve, with an 80 per cent expectation that rates will rise by 25 basis points.
While this figure is generally priced-in, traders will be more interested in hearing the accompanying Federal Open Market Committee’s economic projections for 2019 and monetary policy statement.
If it looks like there will be three or more US interest rate hikes in 2019 we can expect to see the pound US dollar pairing weaken substantially.
Ahead of the meeting US President Donald Trump blasted the Federal Reserve for raising interest rates during a time of economic turmoil.
He tweeted: “It is incredible that with a very strong dollar and virtually no inflation, the outside world blowing up around us, Paris is burning and China way down, the Fed is even considering yet another interest rate hike. Take the victory!”
Some commentators appeared to agree with Mr Trump’s sentiment, pointing out that the US dollar Index is up 5.8 per cent on the year, while inflation is below the Fed’s own target, at 1.8 per cent, meaning any further rate hikes will make US exports less competitive while also damaging citizens’ spending power.
Nevertheless, if the Fed decides – against the odds – to follow Mr Trump’s advice and keep rates on hold we can expect to see some strong gains in pound US dollar