Dollar depreciates against peers on weak trade figures
07/Oct/2015 • Currency Updates•
Both the Euro and Sterling experienced strong rallies late in the day against the US Dollar yesterday, with both currencies erasing losses suffered on Monday. This rally came after the latest US trade balance data added further fuel to the argument that the Federal Reserve could refrain from hiking interest rates this year. This is compounded with last week’s disappointing labour report.
Today looks set to be a relatively quiet day among the global currencies. Any announcements from this morning’s non-monetary policy ECB meeting will be worth looking out for, while later we’ll see NIESR’s GDP estimate for the UK at 3pm London time. Growth estimates have declined moderately over the past couple of months, with concerns over a global slowdown and a strong Pound in trade weighted terms weighing on UK output.
The UK currency approached its strongest position against the US Dollar in a fortnight on Tuesday, appreciating by 0.5%.
There was little data to report in the UK yesterday, with the Pound’s rally driven more by Dollar weakness, on the back of poor trade data across the pond. Sterling did, however, lose ground against the Euro, with weak service sector data in Britain continuing to cause some analysts to push back expectations for a Bank of England interest rate hike. Thursday’s monetary policy meeting remains key, with the number of dissenters and tone of minutes likely to provide more concrete clues as to the timing of an interest rate hike.
Meanwhile, house prices fell in the UK in September according to data released by Halifax. Prices surprisingly fell by 0.9% in September from August, the largest month-on-month decline since March last year. The IMF also remained upbeat on UK growth prospects, expecting the economy to grow by 2.5% this year, despite slashing global forecasts.
The single currency gained against both of its major peers on Tuesday, up by 0.6% against Greenback, dismissing rather soft data in Germany during early morning trading.
Factory orders in Germany unexpectedly slid in August in the latest sign that Europe remains vulnerable to a slowdown in growth in China and emerging market economies. Orders declined by 1.8% for the month, the second month of declines, and the largest since January. A China-led global slowdown threatens German’s export-orientated economy, which is already under pressure by the recent emissions scandal at Volkswagen.
ECB President Mario Draghi spoke last night at an event in Brussels. However, he disappointed traders by failing to touch on monetary policy, giving no clues about a possible expansion or extension of the central bank’s quantitative easing programme. The Euro was subsequently unmoved by his comments.
The US Dollar trailed off by 0.5% versus its peers in late afternoon London trading on Tuesday. Trade data released by the Bureau of Economic Analysis disappointed and suggests that the Federal Reserve may push plans to begin hiking interest rates further into the future.
The trade deficit in the US widened significantly in August according to yesterday’s data. The gap between exports and imports swelled by over fifteen percent to -$48.3 billion, it’s largest in five months amid a slowdown in global demand and a surge in imports from China following the devaluation of the Chinese Yuan. Despite the US purchasing the least petroleum from abroad in over a decade in August, imports rose by 1.2%, while sales of US goods and services abroad fell by 2% to their lowest level since October 2012.
Today looks set to be a relatively quiet day in the US economy. Consumer borrowing and mortgage approval figures may cause moderate volatility, although most attention will turn to Thursday’s FOMC meeting minutes from the September meeting. Traders as always will be looking to gain any further clues regarding the possible timing of an interest rate hike in the US.
Rest of the world
The Reserve Bank of Australia opted to keep its benchmark interest rate unchanged at its monetary policy meeting yesterday for the fifth straight month at 2%. The central bank is now not expected to cut further until the beginning of 2016 at the earliest.
Elsewhere, the Bank of Japan held off from expanding its monetary easing this morning.
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