IMF growth forecasts dampen dollar

Claire Hogarth17/Jun/2014Currency Updates

GBP

Sterling had a volatile day against the dollar, jumping up early on before retracing over the session. A dour IMF growth forecast for the US lent some support later on, and cable ended up around evens. It was less exciting against the euro, coming off slightly after last week’s record highs.

A lack of data from the UK gives little to reflect upon in currency markets, but the legacy of Carney’s Thursday night speech has apparently spilled over into futures markets. With interest rates now expected to rise sooner than previously thought, sterling backed derivative traders have gone into overdrive, with volumes on Monday at record highs. Investors are clearly convinced by the Governor’s assertion and are more and more keen to take longer term positions on the pound.

Sterling indices are still around 1% up since Thursday, and the pound’s resistance at these record levels will be tested this week with little UK data to prop it up.

Data out tomorrow includes CPI, PPI and retail sales for May.

EUR

The single currency snuck in around the back yesterday, taking advantage of dodgy dollar sentiment to steal a march on its most traded pair.

Inflation figures in the Eurozone came in at expectation yesterday, which would have been a relief to euro backers. The figures showed 0.1% deflation in May, dragging the core YoY growth to 0.7%.
Data out today includes mid-tier ZEW surveys for Germany and the EU as a whole.

USD

The greenback lost ground on both its major pairs yesterday, reversing gains made in the early morning.

The catalyst for this slump was the IMF’s downgrading of growth forecasts for the US economy to just 2% in 2014 down from an April estimate of 2.8%. 2015 remained the same, at 3.2%. Whilst the winter slowdown and sluggish domestic were cited as main determinants, the key for currency markets was Lagarde’s advice to keep interest rates at record lows for a little longer.

Crucially, this is in direct contrast with what we saw at the weekend end the UK. We could see some forecasters alter their medium and long term cable positions.

Data out today includes CPI inflation for May, expected bang on 2%.

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Written by Claire Hogarth

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