US economic growth has been upgraded following positive data, despite last week’s tricky time for stock and currency markets.
This week is an important one for the US economy, with the release of a slew of economic data that is likely to have a noticeable effect on currency markets and causing movement in exchange rates against the US dollar and its major currency pairings. Positive data for the US economy will also provide markets and policymakers with an indication of whether there may be another US interest rate increase in the coming months – there is speculation that this could happen as soon as the next Federal Reserve meeting in April, or interest rates could go up in June, the probability of which was originally considered a 50 percent chance by markets.
Speculation about a June interest rate rise started again in earnest off the back of better than expected market data and the boost this provided for both the US dollar and the economy as a whole. Consumer spending figures released at the start of the week were higher than anticipated; one of the factors leading to a revision of the US Quarter Four GDP to 1.4 percent, significantly higher than the original estimate of 0.7 percent. This growing consumer confidence could be the impetus the US economy needs to raise interest rates again. More key economic figures are expected later this week, with the data release likely to have the most marked impact on markets and the strength of the US dollar or this week being the non-farm employment change data, expected on 1st April.
March has been a busy time for both the US economy and the US dollar, as important economic data releases have in turn affected the strength of the dollar and currency exchange rates. Earlier this month, US employment figures also provided positive news for the US economy, showing that they had provided an additional 242,000 jobs in February 2016, exceeding initial market expectations forecast at 190,000. More jobs in the US creates a long term increase in wages and also affects the price of housing. Employment data was not the only positive indication of the health of the US economy: the results of the Construction Spending data and ISM Manufacturing Purchasing Managers’ Indices (PMI) earlier this month were also reported at higher levels that expected.
However, despite a positive outlook, there remain concerns over some areas of the US economy. US Services PMI figures earlier this month were disappointing and indicated a decline. Low oil prices have proved to be a double-edged sword for the US economy, providing an increase in disposable income for the average American, but also taking their toll on US energy companies, necessitating scaling down and cuts to workforces. The low oil prices are also having a knock-on effect on the already ailing US export and import markets, both of which fell at the start of 2016 in response to the global economic slowdown and performance of other key financial markets across the globe.
Carl Hasty, Director at Smart Currency Business, emphasises the importance of staying on top of the situation. “Businesses trading with the US, particularly those importing and exporting goods and services, need to be aware of instances that can cause the US dollar to fluctuate against its major currency pairings, the pound and the euro, in particular. Business owners, CEOs, financial directors and treasury management teams will need to keep a close eye on ongoing economic developments, so they can ensure that their risk management and currency hedging strategies allow for the resulting rise and fall of US dollar strength and be able to factor this into their business costs.”