US Dollar hits three week high after stronger than expected GDP released
31/Oct/2014 • Currency Updates•
After its substantial decline overnight the Pound regained some ground on the Dollar, climbing 0.25% despite traders continuing to place bets that the Bank of England will trail the Federal Reserve when it comes to raising interest rates. The UK currency is in line for a fourth consecutive monthly loss against the strengthening Dollar having now fallen by just over 1% since the beginning of the month. Its overnight fall on Wednesday evening was the greatest experienced this month as the currency edged back towards its eleven month low from two weeks ago.
A quiet data day for the UK economy, although housing prices measured by Nationwide increased by 0.5% MoM and by 9% YoY in October despite falling 0.4% from previous. The month on month increase was a welcome boost after the measure unexpectedly fell by 0.1% in September.
The single currency touched its weakest level against greenback in over three weeks yesterday on the back of the Fed’s hawkish monetary policy statement on Wednesday evening. Despite this, the Euro was able to gain 0.15% on the Dollar over the course of the day despite increasing signs of a slowdown in the German economy.
After relatively weak data across the board this month, inflation in Germany also disappointed in October, falling by 0.3% MoM, its biggest decline since February. The annualised rate of inflation, measured using the average price changes for all goods and services in the country, registered a 0.1% lower than expected reading as a result, remaining constant YoY at 0.8%. Worst still, the harmonised index of consumer prices released by Destatis fell YoY in October to 0.7%, down on expectations and the previous number. In contrast, unemployment registered a greater than expected improvement in October, falling by 22,000, although not enough to influence the overall unemployment rate, which remained at 6.7% for a ninth consecutive month.
The wider implications of weak price growth in Germany may be felt today with the Eurostat announcement of the October CPI data for the Eurozone due for release at 10am London time.
Aided by its biggest overnight climb this month, the US Dollar briefly hit a three and a half week high during trading on Thursday but fell overall by 0.2% after the release of some mixed data.
Yesterday’s main announcement concerned Gross Domestic Product in the States which came in 0.5% above expectations. Encouragingly for the US, this marked the strongest back-to-back GDP reading since the last six months of 2003, another clear sign that the economy appears to be, in the words of the Fed, “on track”. Further promising signs in the job market as the four week average of jobless claims fell to 281,000 in the period ending 25th October, the lowest level in over fourteen years.
A number of announcements across the pond today with the biggest movements expected in Personal Spending and the Chicago Purchasing Manager’s Index, with both predicted to fall on previous.
Rest of the world
Brazil shocked the markets by unexpectedly raising interest rates by a quarter of a percent to 11.25%, causing the currency to gain by as much as 2.5% on the Dollar. This, however, wasn’t the biggest mover of the day as the Russian Ruble surged by its greatest amount in over eleven years, jumping by 5.1% on greenback in the lead up to the central bank meeting today.
Bank of Canada Governor Stephen Poloz described CAD’s current depreciation, which has seen the currency fall 5% since July, as the “icing on the cake for exporters”, while the New Zealand central Bank stated it will keep its interest rates on hold for an extended period amid low commodity prices and increased global volatility.