Euro strengthens again as doubts over the Fed interest rate timing sap Dollar

Claire Hogarth14/Oct/2014Currency Updates

One of the quietest data days in weeks was reflected in the markets on Monday, with limited movements among the major currencies as the FX markets remained mostly stable. This, however, may well be the quiet before the storm, as speculation on the timing of the next interest rate hike in the US and UK is set to continue amid a busy couple of weeks of announcements, data releases and speeches.

GBP

The Pound’s brief recovery against the Dollar appeared to be waning on Monday as the UK currency softeneed on greenback, falling by 0.15%. Sterling has been pushed lower against its peers due to a recent downturn in sentiment for the currency and the UK economy in general. Moreover, UKIP gaining its first seated MP last week in the form of Clacton’s Douglas Carswell has caused increased political uncertainty in the past few days, with the markets reacting accordingly.

The UK kick-starts a busy few days of releases today with the announcement of the Consumer Price Index (CPI) and core Consumer Price Index figures for September. The data is set to be announced at 9:30am this morning with the pace of consumer price gains expected to slow in September from 1.5% to 1.4%.

EUR

While no key data was released in the Eurozone yesterday, the Wholesale Price Index for the region’s largest economy caused a slight fall in the single currency in early trading. The data for Germany, which shows the value of sales made by wholesalers, declined by more than expected YoY from a value of -0.6% in August to -0.9% in September. Despite this brief drop, the Euro recovered to finish stronger on both GBP and USD, rising by 0.3% and 0.2% respectively.

After reaching its highest level in six years at the end of 2013, the ZEW survey of economic sentiment in Germany has decreased in every month during 2014. ZEW data for October, set to be released at 10:00am today, is expected to continue its downward trend and heap further pressure on the ECB to take additional action.

USD

The Dollar fell slightly during trading on Monday for the first time in three days with the US Dollar Index declining by 0.1%. This continues the trend from last week, after the Index, which measures the performance of the currency against its major peers, declined by 0.8%.

Fed officials have hinted that the current worldwide economic slowdown may be a catalyst for a potentially later than expected interest rate hike. With global growth stuttering below market expectations, this throws into question whether the economic environment is currently in the best position for a Fed interest rate hike, especially after the dovish tone of the Fed minutes last week.

Rest of the world

The Russian Ruble fell by 0.4% yesterday and dropped to its lowest level in the past 15 years against the greenback with more Russians now choosing to keep their cash in Dollars and Euros. The number of people holding foreign currency rose in September with the premium to swap Rubles for Dollars climbing to a record at the end of last week. Investors are betting the most in six years that interest rates will increase, this comes after $6 billion worth of interventions have failed to prevent the decline of the currency. Much like the Eurozone, the Russian economy is at risk of dipping into a recession with the Ruble losing 22% of its value in a little over 12 months.

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Written by Claire Hogarth

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