US Dollar continues march

27 August, 2014

Robin Haynes

Yesterday’s US consumer confidence figures have given the US Dollar a further boost, with a better reading than expected showing further confidence in the US economy. The Greenback has now gained 3.5% against the Pound since its peak in early July, making a $200,000 property purchase £4,000 more expensive for a British buyer.

Today we have no important data due out so we expect another relatively stable day for exchange rates. With a short trading week after the bank holiday, September will soon be upon us with the monthly round of interest rate decisions, inflation figures and so on, so it is worth remembering that rates are still good for the Pound against most currencies including the Euro, compared to the start of the year. The UK economy has outperformed many this year so far, and rates for sending Euro payments still 3% better than at the turn of the year. The rest of 2014 will likely be about interest rate timing, with many analysts believing the Pound will not recover significantly unless there is a surprise interest rate rise before 2015.

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Scottish Referendum next month

We also have the Scottish independence referendum on September 18th. There is currently much debate over which currency an independent Scotland would use, with First Minister Alec Salmond insisting that the Pound would prevail, but Alastair Darling saying that there would be no deal and Scotland would have to have its own currency or join the Euro. These arguments and their implications will be expanded between now and the 18th, but we would expect some volatility in the leadup to the referendum for exchange rates, and usually uncertainty causes weakness – so the Pound could be expected to fall around the time of the vote, and continue to do so if Scotland votes to leave the UK, until the crucial currency issue is resolved.