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Global Oil Glut Forecast to Drive Pound US Dollar Exchange Rate Appreciation

January 28, 2016 - Written by Frank Davies

Federal Reserve Predicted to Hike Rates in H1 thanks to Mostly Supportive Domestic Data

Higher than expected outcomes from two very different US data sets yesterday afternoon have served to pull the US Dollar (currency : USD) in opposing directions.

December’s New Home Sales figures showed that American property market participants were far more active than analysts had been expecting last month. Property insiders were anticipating that the data would reveal that some 500,000 newly constructed homes had been sold in the States last month; the result of 544,000 - representing a month-on-month increase of some 10.8% - therefore provided the Buck with a considerable fillip.

The health of the local property market is one major factor considered by Federal Reserve policymakers in deciding whether to increase US interest rates, so yesterday’s data would appear to make another hike in America’s cost of borrowing before the middle part of the year all the more likely.

Unexpectedly High US Crude Stockpiles send Global Oil Prices Lower

However, the other major US data release yesterday had a diametrically opposite effect on the Greenback. Oil analysts had been anticipating the latest weekly data would reveal that America’s stockpile of Crude Oil currently stands at a whopping 4,000,000 barrels.

The result was far higher, however, and showed that US Oil Inventories actually stand at 8,333,000 barrels – their highest level since the 1930s – heaping further pressure on global oil prices.

Price of Oil Yet to Bottom Out with Iran due to Add to Global Stockpiles

With one-time pariah state Iran being given permission in recent days to freely trade its supplies of ‘Black Gold’ – a move which oil insiders believe may see as many as one million additional barrels per day flooding the wholesale market – it appears highly likely that the price of oil is yet to bottom out. Several oil production nations, including - vitally - Saudi Arabia, have signaled they may be willing to act to stem the oversupply. Falling oil equates to low inflation on a global scale, making the next hike from the Federal Reserve all the more unlikely until the market can stabilise.

Most FOEX analysts now forecast that the Pound Sterling US Dollar exchange rate does not now have the legs to break down into the 1.3000s GBP USD in the short to medium term.

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