RBS (LON:RBS) has today issued their latest guidance on the future direction of the British Pound and US Dollar.
The last month saw a strong rebound in the dollar against all the major currencies. The world's premier reserve currency rose a solid 6c against the British Pound (from $1.66 to $1.59), and almost 10c against the Euro ($1.508 to $1.425).
Against the Japanese yen there was also movement, with the yen moving solidly back into the 90's, having strengthened to Y86.7 at the start of December.
RBS says it is good news from the US that looks to have driven the ascent in the value of the dollar:
Employment levels held steady in November - their best reading since the recession began in 2007. The number of people employed fell again in December, but the 85K monthly decline, was well below the declines seen earlier in the year.
This was taken by investors as a sign of a turnaround in economic fortunes.
The RBS report has however not taken account of the latest figures on US unemployment which have shown unemployment to be higher than analyst predictions.
The pick up in US inflation is also likely to have brought forward the date at which investors expect the Fed to start normalising policy. US inflation jumped to 1.8% in November, having been negative for the previous twelve months.
"Our medium-term outlook for exchange rates remains unchanged. The dollar is probably close to fair value against the British Pound as the UK and US economies face similar long term pressures. The euro looks a little strong against both the dollar and the pound, having benefited in recent months from concern over inflation and unsustainable debt/deficit levels elsewhere. We expect the euro to lose some ground in the medium term, eventually moving towards 0.75 against sterling and 1.20 against the dollar," reads the report from RBS.
