Currency News: UK Consumers Optimism Rises & Expectations Rise for Fed Rate Increase

Currency News

United Kingdom (UK): Consumers Seem More Optimistic

Earlier today, on August 31, 2016, the pound (GBP), has finally begun to rise in an aftermath of Brexit. In relation to global currencies, the pound had traded above $1.31 (relative to USD), while gaining 0.2% against the euro. This shows great news for England’s Central Bank in their fight to keep inflation stable, as the UK negotiates their exit from the EU later this year. Since the vote earlier this year, consumer demand has remained relatively stable, however, now consumer confidence has actually begun to increase. This shows that consumers in the UK have adjusted to their new reality, have once again begun to spend as normally.

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The main indicator used to was the British Housing Market, which has seen a rise in overall prices by 5.6%, as opposed to 5.2% a month prior, according to mortgage lender Nationwide. The UK Housing Market in general is is a lot more sensitive to interest rate fluctuations than other countries, especially in relation to the rest of Europe. Therefore, when earlier this month, the Bank of England had cut interest rates by 25 basis points (BPS), it had positive macro reaction onto the UK Housing Market, quicker than other countries would have. Although the consumers seem more optimistic, investors are still wary of short-term performance, as capital inflow (foreign capital), is running low in the UK, and further interest rate cuts can further reduce the inflow. Basic Economics would explain that as expansionary monetary policies take place, i.e. interest rate cuts, it has an adverse effect on foreign capital flow. 

Federal Reserve: Dollar Rises As Expectations Rise For September Rate Increase

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The Main indicator depicting a rising confidence in the Fed to increase interest rates, are positive job reports, showing employment to be reaching full-employment target level. This had caused the dollar to reach to a three-week high of 96.1, as represented by the Dollar Index; and as well has caused U.S. shares to fall. Although many economists feel that new measures need to be used to readjust how the Fed evaluates their monetary policy, seemingly Fed Chair Janet Yellen instead depicts the U.S. economy in a positive light. Although investors worry of rate increases, on a systematic (macro) level, the rate increase is long overdue, as the Fed needs more tools to help combat a future recession. Additionally, they as well need to reassure the public of their ability to manage the U.S. economy, specifically inflation and unemployment levels.



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