Dollar rallies amid weak UK data and Greek chaos

Tom Tong16/Jun/2011Currency Updates

Overview

The dollar came out as the big winner yesterday on the majors as the euro and sterling tussled with each other to see which had the gloomiest outlook in terms of economic data. The euro remained weak in view of this weeks’ downgrade of Greece’s credit rating by Moody’s whilst sterling was hit by a depressing outlook in terms of jobs data. Meanwhile the dollar was supported by news of the US government looking at measures to effectively force the revaluation of the Chinese yuan.

GBP

Sterling dipped by 1.1% against the dollar yesterday but gained against a weakened euro by 0.8% on the day. The economic outlook was weak despite an overnight boost to consumer confidence. At 00:01 on Wednesday morning the Nationwide consumer confidence reading came in higher than expected at 55 (the market was expecting a reading of 41). This early boost was largely offset by poor UK job sector data at 09:30. Although the unemployment rate remained unchanged at 7.7%, the real damage was done by the surge in the claimant count. The claimant count was expected to show a growth of 7.7 thousand but came in far worse at 19.6 thousand. This shows again just how flat UK economic growth is, take into account Tuesday’s inflation data showing CPI wedged at 4.5% and it is easy to see the Bank of England’s dilemma over interest rates. It appears that at least short term the need for economic growth is stopping any interest rates geared to cap inflation.

The only significant economic data in the UK today is Retail sales at 09:30. This is expected to show a monthly drop of 0.5%.

EUR

The euro took a metaphorical battering yesterday as the market seemed to view the lack of a Greek bailout and the downgrading of Greek credit rating as a serious risk to the current outlook of the single currency. Moody’s had downgraded the Greek credit rating to CCC, which as close as it can get to defaulting on debt. Previously the euro had looked strong in view of the current interest rate scenario in contrast to the other majors, but the market has put the current sovereign debt crisis more into perspective. On the day the euro slipped by over 2% against the dollar and by 0.8% against the pound.

The main data focus for the Eurozone will be inflation data at 10:00. The market is expecting to see the Year on Year view of CPI and Core CPI as unchanged at 2.7% and 1.6% respectively.

USD

The dollar was the major gainer yesterday as both the euro and sterling were weakened by yesterday’s flow of economic news. The euro weakened by over 2% on the day after overnight trading whilst the pound also lost over 1.1%. The weakened view of both the euro and pound took the lead of flat US manufacturing and industrial production data. The Empire State manufacturing index came in at -7.8 against the expected 13.0 number. Meanwhile Industrial Production showed marginal growth at 0.1%. Meanwhile overnight news broke of Senator Charles Schumer’s intentions of reintroducing legislation aimed at forcing China to raise the value of its currency. The measure allows US companies petition for duties to be placed in Chinese imports to offset the trade advantage given by the weak yuan.

The main data focus will be on the US unemployment claims at 13:30, expected to show unchanged growth in claims of 0.2%. And then at 15:00 the Philly Fed manufacturing index is expected to show a reading of 7.1.

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Written by Tom Tong

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