USD takes a breather after earlier rally

Claire Hogarth29/May/2014Currency Updates

GBP

London closed with sterling partially reversing Wednesday’s drop against the greenback and fairly flat against the euro.

Wednesday saw sterling suffer its biggest one-day fall against the dollar so the snap back was widely expected. The week so far has seen sterling struggling to gain traction in the wake of hawkish noises stemming from the Bank of England. Policymaker Martin Weale stated that the BoE should raise IR sooner than later, but now is not the time to start. The market has mostly priced in a hike for Q2 next year however the situation remains on choppy waters and the noises from the BoE and wider market can easily rock the boat.

Data for the UK was light yesterday, retail sales saw a dip however this was to be expected as we have recently seen record levels of retail sales as consumer sentiment improves and people are more willing to spend. The results of the CBI trade survey came through in line with expectations.

Data of note today includes GFK consumer confidence.

EUR

London closed with the euro edging up slightly against the dollar. Trading against sterling was fairly flat with the close a whisker away from the open price, although, with a data heavy day for the Eurozone, we did see some intraday swings. Elsewhere euro trading was mixed across the board as the market reacted to varied Eurozone macro data.

Economic sentiment improved, driven higher by widespread improved confidence; the index rose to 102.7. German unemployment levels increased unexpectedly, the number out of work increased by 24,000. This is the first time in 6 months that German unemployment levels have come in on the downside, the overall trend remains positive and one negative reading is unlikely to hold much effect.

The euro gains against the dollar were welcome, as the Wednesday dollar rally reduced the euro to hovering close to a 3 month low against the greenback. Despite constant chatter of the euro being overextended, it continues to perform very well. Expectations of some policy action from the European Central Bank have been mounting, a key reason for the recent euro slip off. The latest Reuters poll of 48 economists showed a clear majority expect the ECB to cut its deposit rate into negative territory next week. It’s likely the euro will continue to stay on the defensive going into the ECB meeting.

Annual Spanish GDP figures came in slightly below expectations this morning, however a quarterly reading shows improvement. It is Ascension Day across most of Europe so markets will be a little quieter.

USD

London closed with the dollar well supported across the board; however it appears to be taking a breather after the rally earlier in the week. London closed with the greenback reversing some of the week’s earlier gains against sterling and the euro. The Asian session has seen a slight pivot and there appears to be plenty of dollar buying interest.

Presently the greenback is hovering near a 2 month high against its basket of most traded currencies. The dollar index is sat at 80.940, a touch away from highs not seen since early April. The results of the Redbook index came in on the upside lending the greenback further support. Mortgage applications saw a dip however the real estate market remains fairly healthy.

Data heavy day for the US today including GDP, initial and continual jobless claims and home sales. Today is set to be an eventful day for the greenback.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.