Pound vs US Dollar: Has risk appetite increased?

Pound Vs US dollar

In today’s post I will focus on Pound Vs US Dollar exchange rates. With US/China trade tensions easing, will we see the US dollar weaken further?

Stocks on Wall Street and in Asia have traded higher this week as the US agreed to delay another round of tariffs on Chinese imports by two weeks to October the 15th. There has also been an increase in Chinese importers requesting prices for goods from the US. Does this mean the end of the US/China tensions?

The answer to that is no, but it is a step in the right direction. It has fuelled speculation that the next round of trade talks in October could lead to progress in resolving the trade dispute.

What does this mean to the currency market?

With tensions hopefully easing I would expect a surge in value for currencies that are classified as higher risk. These currencies historically would be those returning a higher yield. Examples being the Australian Dollar, New Zealand Dollar and South African Rand. This week we have seen all of these currencies strengthen in value. We have also seen the safe haven currencies weaken, a clear sign of increased risk appetite. Of course these trends may not last for long, particularly if trade talks to not progress in October, a likely scenario.

We will also begin to see further developments regarding Brexit when Parliament re-convenes on the 15th October. Next month is likely to be a very busy month. With GBP/USD at a near 2 month high and having rallied 3.5% in 10 days, maybe it is a good time to buy US dollars?

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