Given that the Federal Reserve announced its interest rate decision at around 7pm BST on Wednesday evening, the market reaction was always likely to spill over into the following day and possibly even beyond that. As expected, rates were hiked by 25 basis points to a range of 2% to 2.25%, so it wasn’t really that which caused the dollar to strengthen. It was more the fact that the central bank’s ‘dot plot’ showed that 12 of 16 officials are in favour of four rate hikes this year. Another hike in December is now more likely than not.
The pound dipped below $1.31 at one point during the day but it otherwise hovered around that mark throughout. Against the euro, the dollar moved higher once again to cap a couple of bad days for the single currency. The eurozone’s economic sentiment reading fell for the ninth month in a row, while Italy’s budget deficit row didn’t help the single currency either. There was some disappointing news from the UK too, as car production fell by a whopping 13% in August.
It was a different story in the US, as the final reading of the GDP growth rate for the second quarter of 2018 was confirmed at 4.2%. This should serve to justify the Fed’s decision to hike rates. Initial jobless claims rose by more than expected but that is certainly nothing for America to worry about, especially seeing that the last reading was the lowest since 15 November 1969.
Amber Rudd said as many as 40 Tory MPs would vote against a Canada-style trade deal with the EU if Theresa May went ahead with it. Labour would also not support the deal, so there is no chance it would get through parliament. Jeremy Corbyn went to meet Michel Barnier, with reports suggesting talks were initiated by the EU as concerns grow over a no-deal Brexit. Does anybody know what is happening anymore? There seems to be so many options on the table but nobody is happy with any of them.
Today we have the final reading of the UK’s GDP growth rate for the second quarter of 2018, as well as Gfk consumer confidence for September. In the eurozone, we will see the flash inflation reading for September and we will also see the German unemployment rate.
All this volatility is extremely risky to your budget – a sudden drop can, and has, caused people to lose thousands of pounds. That’s why we offer our forward contract service, whereby we will lock in the same exchange rate for you for up to one year. That way, you don’t need to worry about how the markets change. Simply speak to your Personal Trader on 020 7898 0541 to find out how.