USD continues strength ahead of Fed meeting

The GBP/USD rate has wiped out all the gains it made throughout the early part of October and we are back down to $1.2090 this morning. It isn’t just the pound the US dollar is gaining against. The EUR/USD rate is also back down to $1.0550. These gains come ahead of the end of the month at the close of business on Tuesday and the US Federal Reserve interest rate decision on Wednesday. There is no expectation of a change in the US base rate but there is every reason to suspect the Fed will be robust in the tone of their statement, despite very mixed US data. The week will conclude with the US employment reports; the first signs we will get of the state of the American economy in the month of October. So stand by for a volatile week where the US dollar is concerned.

AUD gains on retail sales

Australian retail sales were 0.9% higher in the month of September, three times the level the markets expected and that comes on the back of a number of other positive pieces of economic data from Australia. Understandably, the Australian dollar has strengthened on the back of that news. The GBP/AUD rate is down to AUD 1.9025 this morning, roughly where it was at the start of October. The other side of this equation is a weaker pound, due to general market concern over the state of the UK economy. For important data from Australia and the UK, we will have to wait until Thursday when the Australian trade balance will be published and the Bank of England will deliver its interest rate decision. More of that below. However, Australia is heavily influenced by the data from its main export market and we will have Chinese purchasing managers indices in the early hours of tomorrow and in the early hours of Wednesday. The forecasts for these data releases are relatively positive, so further Aussie dollar strength should not be ruled out. Although we are not quite at the highs we were in the middle part of the month AUD buyers may wish to act sooner rather than later.

GBP slipping ahead of BOE

The Bank of England will deliver their interest rate decision on Thursday. There is every likelihood they will leave the base rate on hold at 5.25% but, like many central banks, the old lady of Threadneedle Street is in a quandary. The economy appears to be stagnating although it has avoided recession thus far but continued tight monetary policy could well tip the economy into recession. On the other hand, the BOE is tasked with bringing inflation into line with their 2% target and that just simply isn’t happening at the moment, not through over-exuberant retail activity but through stubbornly high wholesale prices. The statement that accompanies the bank’s decision will be the key to the pound’s progress in the early part of November. We will watch with interest. As of this morning, the GBP/USD rate is down to $1.2090 and the GBP/EUR rate is trapped in a narrow range between €1.1450 and €1.1520.