US Dollar hits record high as economy gains from falling oil prices

Claire Hogarth03/Dec/2014Currency Updates

GBP

After its strong performance on Monday, the UK currency was brought back down to earth yesterday, falling fairly substantially against the Dollar, weakening by 0.4%.

The UK construction industry expanded at the slowest pace in thirteen months according to Markit Economics, while optimism for the year ahead fell to its lowest level since October 2013. A less favourable overall economic news flow was cited as the reason behind the slowdown in growth, with the PMI falling from 61.4 in October to 59.4 in November. While this was down on expectations, it remains well above the 50 threshold for growth; however, this was not enough to prevent a Sterling depreciation.

A significant day in the political calendar today as George Osborne releases the Autumn Statement at 12:30pm, the last before next May’s general election. The statement, as always, will cover an update on the state of public finances and fiscal objectives, with the encouraging growth and unemployment rates likely to be at the forefront. Market volatility is to be expected.

EUR

The single currency traded within a narrow band of the pound again on Tuesday, ending the day 0.1% down, while falling 0.5% on the strengthening Dollar.

The average change in selling prices by domestic producers fell in the Eurozone in October it was announced yesterday. The Producer Price Index, as measured by Eurostat, fell by 0.4% after September’s 0.2% increase. Producer prices have now fallen by 1.3% on this time last year, fuelling further speculation of deflation in the Eurozone. Despite this, the ECB is not expected to announce more stimulus measures at this Thursday’s monetary policy meeting, with more of a wait-and-see stance expected. Elsewhere, some encouraging news from Spain as it was revealed that unemployment declined by 14,700 in November, after analysts had predicted an increase.

More data from Markit today with the release of the Services PMI’s at 9am, however, market focus in the Eurozone will be on retail sales data at 10am London time.

USD

A strong trading session for the US Dollar saw the currency climb against almost all of its major peers, including all other G10 currencies. The US Dollar index rose by 0.5% and reached its strongest position since March 2006, with greenback having now appreciated by 10% against its major counterparts in just six months.

Lower oil prices was the major topic of debate in the US yesterday as Federal Reserve members Stanley Fischer and William C. Dudley both spoke on Tuesday. Speaking at separate events in New York, both stressed the positive economic impact that lower oil prices are having on the wealth of individuals across the US. The inevitable lower inflation that a decrease in oil prices brings will only be temporary according to Fischer, who appeared unconcerned by any deflationary risks caused. Data releases were limited during the day, although, Construction Spending increased by 1.1% in November, its greatest climb in three months, while the ISM New York index, a measure of business conditions in the country’s most populous city, rose from 54.8 in October to 62.4 in November.

A string of releases in the US on today will be centred on the Institute of Supply Management’s non-manufacturing PMI for November at 3pm.

Rest of the world

Currencies of oil-dependent economies continued to struggle yesterday as the price of crude oil fell once again. The Norwegian Krone weakened against all of its sixteen major counterparts, finishing the day 0.8% down on the Dollar. Elsewhere, the Mexican Peso declined by 0.75% after thousands protested against President Enrique Pena Nieto in Mexico City. The day’s worst performer was the Russian Ruble, which plummeted a further 6.3% as growth estimates were slashed, with the country’s first recession since 2009 now predicted for next year.

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Written by Claire Hogarth

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