Sterling/US Dollar exchange rates fell sharply towards the end of 2015. The main reason for this was the fact that the US Federal Reserve raised their interest rate, the first major western economy to do so. This had the effect of strengthening the US Dollar due to the higher return on offer for investors. The increased demand for USD made it more expensive to purchase, which you can ssee in the chart outlining the last 3 months movements for GBP/USD:
What does 2016 have in store for GBP/USD?
There are 2 sides to this coin, Sterling and the US Dollar. If we look at Sterling first, then we could see the Pound weaken in the first part of this year, before bouncing back in the latter part of 2016. This is due to the uncertainty the EU vote will generate, which I outlined in yesterdays GBP/EUR post which you can see here.
Looking at the US Dollar, there is talk that the FED will continue to raise interest rates this year, albeit gradually. I think March could be the next move. If they do continue to raise rates, then logic would dictate a further strengthening of the US Dollar.
In the shorter term, on Thursday and Friday this week we’ll have some key US employment numbers that will likely drive GBP/USD in the short term. Put simply, if the jobs numbers are impressive then GBP/USD could fall further, and vice-versa.
Of course there are other factors, such as global growth, Chinese growth, Oil prices, and the fact the US Dollar is a ‘safe haven’ currency, all of which will play their part in cable rates over the course of the year.
I personally think we’ll see rates remain below the $1.50 mark until the latter part of 2016. At this point focus will probably turn to the UK raising interest rates here, and that could start pushing the Pound higher again.
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