US Dollar falls again amid safe-haven flight, good news for Yen and Euro
10/Feb/2016 • Currency Updates•
Safe-haven currencies gained for a second straight on Tuesday, with a further sell-off in stock markets worldwide causing risk appetites to wane. Many Eurozone bank shares are now trading around the lows hit in the summer of 2012 before ECB President Mario Draghi’s notorious ‘do whatever it takes speech’.
The Japanese Yen and Euro both gained, while the Swiss Franc soared to its strongest position against the US Dollar since October, ending the session as the best performing major currency in the world.
The US Dollar subsequently extended its recent sharp and unprecedented sell-off. The US Dollar index touched its lowest level in four months, having now declined by 3% this year amid the safe-haven flight and dampening expectations for a Federal Reserve interest rate hike.
The consensus still remains for further USD appreciation in both the medium and long-term. Thereby the current sell-off has provided a short-term opportunity for businesses to take advantage of relative Euro strength versus the US Dollar, before the strong correction begins.
Sterling had another mixed trading session, ending higher against the US Dollar and lower versus the Euro, after mixed trade data was released in the UK yesterday morning.
Federal Reserve Chair Janet Yellen will be the focus of trading this afternoon when she speaks in front of Congress at Capitol Hill at 3:00pm UK time. Comments from Yellen regarding the recent market turmoil, lack of inflation and possibility of a Federal Reserve interest rate hike in March will all be worth looking out for.
Major currencies in detail:
The Pound ended 0.6% higher against the US Dollar but fell 0.6% versus the Euro on Tuesday. This is a fresh thirteen month low against the single currency amid another day of turmoil in global stock markets.
Britain’s trade deficit narrowed more than forecast in December, although not by enough to prevent the UK registering the largest deficit with the rest of the world on record in 2015. While the trade deficit of goods lessened in the final month of the year, the overall deficit in the fourth quarter widened to £10.3 billion from £8.6 billion in the third quarter, its largest trade gap since the start of 2015. Trade will likely provide a drag on overall fourth quarter economic growth.
This morning’s release of industrial and manufacturing output data for December will likely be the biggest market mover today.
The single currency continued to defy expectations by appreciating again on Tuesday. The Euro ended 1.3% higher against the US Dollar, touching its strongest position since October.
Earlier in the day, industrial production data in Germany surprised to the downside. Production unexpectedly declined by 1.2% in the month to December, its largest monthly decline since August.
An improvement in domestic conditions, including a tightening in labour market conditions, continues to be offset by declining demand from abroad, with production down by 2.2% on an annualised basis. This does not bode well for fourth quarter economic growth, set for release on Friday.
The German trade surplus also dwindled in the last month of 2015, declining by 8.3% following an unexpectedly sharp 1.6% fall in overall exports.
The European Commission’s growth forecasts for the Eurozone this morning look set to be the only major announcement in the Euro-area today.
The US Dollar ended 0.9% lower against its major peers on Tuesday, with heavy losses against the safe-haven currencies sending the Greenback sharply lower. Sentiment for the currency continues to be weighed down by delayed expectations for a Fed interest rate hike.
There were further signs of a tightening in labour market condition in the US yesterday. The monthly JOLTS job openings increased for the second straight month to a five month high of 5.6 million in December. This, coupled with lower unemployment and higher wages, suggests the US labour market continues to perform strongly.
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