Dollar rebounds after hawkish Fed minutes

Tom Tong04/Apr/2012Currency Updates

GBP

Sterling fell from four-month highs versus the greenback yesterday on bond sales but it remained underpinned by upbeat manufacturing and construction data which reduced concerns over a lack of growth in Britain’s economy.
Activity in Britain’s construction sector accelerated in March, with orders rising at their fastest rate in 4.5 years, following Monday’s similarly positive manufacturing data (which hit a 10-month high), easing worries over the health of the economy. Market analysts said Sterling’s recent bullish tone was also being driven by expectations for further QE in the United States. Such stimuli have weighed on the dollar which hit a one-month low versus a currency basket during yesterday’s trading.

USD

The Dollar gained to its strongest level in a week against the Euro after the Federal Reserve’s policy meeting minutes showed the central bank is holding off from monetary stimulus. The minutes caught the market off guard because last week Ben Bernanke warned about the risks of long-term unemployment for the economy, which investors construed as meaning that additional stimulus was still on the table.

EUR

The Euro traded down 0.3 per cent against the Dollar, this fell to 0.7 per cent after the Fed minutes. This comes before European Central Bank meets for an interest rate decision later today. Investors are still looking to sell the Euro as concerns grow about a fragile outlook for the Eurozone economy and high debt levels in Spain and Italy. Italian and Spanish debt yields rose on Tuesday. A document was released yesterday showing Spain’s public debt ratio is expected to hit 79.8 per cent of Gross Domestic Product in 2012. Spain’s 10-year bonds climbed eight basis points yesterday after the unemployment rate rose for an eighth month.

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Written by Tom Tong

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