US Dollar weakens on Durable Goods ahead of Federal Reserve announcement

Claire Hogarth29/Oct/2014Currency Updates

GBP

Another good day for Sterling against the Dollar as the UK currency strengthens by 0.2% to continue its appreciation on the greenback into a third day. Monday’s gains were, however, wiped out versus the Euro, with the Pound falling by 0.15% on the single currency.

While no data was released in the UK on Tuesday, the Deputy Governor of the Bank of England, Minouche Shafik, spoke on the topic of interest rate timings, reinforcing that policy makers would need to see more signs of price pressures growing in the economy, “particularly in terms of wage and unit labour costs” before a hike were to take place. These comments added pressure on the Pound, contributing to Sterling falling on the Euro during the course of the day. Economists continue to push back their bets for a rate hike occurring during 2014, with most now predicting this will not occur until well into the summer 2015.

A number of announcements within the UK this morning begin at 9:30am with the BoE releasing its consumer credit figure for September followed by data on the UK money supply and mortgage approvals for last month.

EUR

The Euro rose slightly on sterling by 0.2% and substantially on the Dollar by 0.4% after weak data came out of the US yesterday afternoon.

A day of few announcements for the Eurozone, although, there was positive news coming out of Germany as the Import Price Index increased MoM by 0.3%. The index, which measures the change in prices of goods imported by Europe’s largest economy, equalled its greatest monthly increase since September 2012, despite falling YoY by 1.6%. This was, however, 0.4% greater than had been anticipated and slightly up on August. Despite this, the report failed to ease concerns over the health of the German economy among many economists, with some citing the weakness of the German economy as a primary cause of poor Eurozone growth in the past few months.

The spotlight on Germany will intensify as the week progresses with the key announcement on Thursday of the unemployment rate in the country followed the inflation figures for October.

USD

The greenback fell against its major peers for a third day straight with the US Dollar Index declining by 0.2% after weaker than expected Durable Goods Orders were announced for September.

Durable Goods Orders, which measures the cost of orders received by manufacturers for goods lasting three years or more, decreased last month, it was announced yesterday. The data, released by the US Census Bureau, showed a decline of 1.3%. This was significantly up on last month’s record low of -18.3%, however, markets did not react favourably for the Dollar as a positive reading in the region of 0.5% was expected. Durable Goods Orders excluding transportation also experienced a decline in September by 0.2%, down on the previous month’s 0.4%, causing the greenback to fall almost 0.3% immediately after the announcement yesterday afternoon. Strong consumer confidence data was able to stabilise the currency, however, as it reached its highest level in seven years in October of 94.5, greater than last month and well above expectations.

Today is a significant day in the economic calendar, focused around the release of the Federal Reserve interest rate decision at 6pm London time, followed by the central bank’s Monetary Policy statement. While rates are widely expected to remain at 0.25%, the announcement may give a greater indication as to when the inevitable interest rate hike will take place.

Rest of the world

Sweden ventured into uncharted territory on Tuesday by unexpectedly cutting its main interest rate to zero for the first time in the history of the world’s oldest central bank. Consumer prices in the country have dropped in seven of the past nine months with inflation remaining below the Riksbank’s 2% target level for the past three years. Yet the magnitude of the cut was far greater than had been anticipated, causing the Krona to lose as much as 1.3% of its value against both the Euro and the Dollar during morning trading.

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Written by Claire Hogarth

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