US Dollar soars to strongest position in seven months
11/Nov/2015 • Currency Updates•
Still benefitting from Friday’s strong labour report and expectations that the Federal Reserve will hike US interest rates in December, the US Dollar continued to soar against its major counterparts yesterday. This is being watched with a degree of concern by UK and European companies as they see the cost of doing business in USD increase.
There were no significant economic announcements across the G3 economies yesterday.
This morning, businesses with Sterling exposure should pay close attention to the latest labour report data from the Office for National Statistics. An increase in earnings and signs of declining unemployment would provide further evidence of a strengthening labour market and thus provide good support for the Pound.
The report will help assess whether or not the UK is in a similar position to the US and can therefore justify a more hawkish monetary policy to counteract USD strength.
Other events today include a speech by Bank of England Governor Mark Carney at 10:30am, and European Central Bank President Mario Draghi will be speaking at 1:15pm.
A lack of major economic data in the UK yesterday meant that Cable barely moved during the London trading session. However, the Pound benefited from broad Euro weakness, ending 0.6% higher versus the single currency, with most of its losses following last week’s dovish Bank of England meeting now mostly recovered.
In the absence of major economic news yesterday, attention was instead on the UK’s membership in the European Union. Prime Minister David Cameron outlined his four goals for reforming Britain’s membership ahead of the in/out referendum set to take place before the end of 2017.
While still a long way off at present, uncertainty surrounding the UK’s membership of the European Union could become a key market mover for Sterling in the not too distant future. Some analysts have already suggested a Brexit could lead to a Sterling crisis, similar to that seen during “Black Wednesday” in 1992.
The Euro remained weak across the board yesterday, declining by 0.6% against the Dollar to its weakest position since April.
The driving force behind the single currency continues to be expectations of further monetary easing by the ECB, with comments from policymakers in the past week all but suggesting that this will take place in December.
From an economic data perspective, there was positive news out of the French economy. Industrial production edged up by 0.1% in the month to September, boosted by rising production in the energy, water and transport sectors. Meanwhile, a similar measure for Italy came in lower than expected at 0.2%, with the economy continuing to tentatively emerge from its long post-war recession.
Mario Draghi will be the focus today. Traders will be hoping to gain further insight into the ECB’s plans for additional easing at the next monetary policy meeting in December.
The US Dollar rose strongly against its major peers yesterday, with the US Dollar index increasing by 0.4% to a fresh seven-month high, amid bets for a Federal Reserve interest rate hike in December.
Economic indicator data in the US was at a premium yesterday, with what was released coming in mostly below expectations. US import prices dropped by 0.5% last month, according to the Labor Department, more than the 0.1% decline that was forecast by analysts. A strong Dollar and soft global demand continue to exert downward pressure on import inflation.
Elsewhere, export price growth dipped by 0.1%, while small business optimism came in below forecast at an index of 96.1. A surprise increase in wholesale inventories by 0.5% suggested third-quarter economic growth could be revised higher.
However, with no major releases, Dollar strength continued with US interest rate futures holding steady, implying around a 70% chance that the US central bank will increase borrowing costs next month for the first time since 2006.
With the US observing a national holiday today to mark Veterans Day, there are no major economic data releases or announcements across the pond.
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