US Dollar hits fresh multiyear high after impressive output data

Enrique Díaz-Álvarez05/Mar/2015Currency Updates


A sharp decline in Sterling yesterday afternoon caused the Pound to fall 0.65% on the Greenback.

Research by the Institute for Fiscal Studies showed that average household incomes in Britain are back to around pre-recession levels for the first time since the 2007/08 crisis. While the recovery has been slow, improved labour market conditions and historically low inflation caused real average household income to grow by 1.1% since the beginning of 2014.

There was mixed news out of the latest survey from Markit on Wednesday. Despite firms hiring staff at the second fastest rate on record, growth in Britain’s service industry eased in February. The PMI fell unexpectedly to 56.7, against predictions for a modest expansion on January’s 57.2. However, the overall recovery in Britain picked up speed at the beginning of 2015, given manufacturing and construction growth both outperformed expectations earlier this week. The survey suggests the economy is on course for another robust performance and expansion of 0.6% in the first quarter.

A hectic early afternoon in the global currency markets begins at midday with the announcement of the Bank of England’s interest rate decision.


The Euro fell dramatically against the Dollar ahead of today’s ECB meeting to finish trading 0.9% down.

The Eurozone economy was, however, given a boost on Wednesday after figures from Eurostat showed there was a surge in retail sales at the beginning of the year. An increase in household spending power, due to multi-year low inflation, lifted sales by 1.1% in January to an annualised 3.7%. Such encouraging data eases concerns of a self-perpetuating deflationary spiral that has been voiced since price growth dipped into negative in the Eurozone back in December.

A string of service sector growth data proved less impressive, with almost all measures surprising on the downside. The Euro-area services PMI was down on forecasts, although still managed to rise from 52.7 in January to 53.7 last month. This was aided by an uptick in growth for Germany and France to 54.7 and 52.2 respectively, while the service sectors in both Italy and Spain witnessed slowed growth in February. Elsewhere, EU commissioner Chief Jean-Claude Juncker caused a stir by warning Greece’s new PM Alex Tsipras to come clean over his inability to stick to his promised anti-austerity programme.

Today, the ECB looks set to reveal details of its quantative easing plans at its latest monetary policy statement at 1.30pm in Nicosia, Cyprus. However, we do not expect any major announcements, with Draghi likely to make the statement as uneventful as possible.


Another good day for Greenback saw the US Dollar index rise by 0.6% to a fresh eleven-and-a-half year high.

Service sector growth in the US surged upwards in February according to Markit. The latest flash PMI accelerated to 57.1 from January’s 54.2, driven primarily by improvements in new business growth. The composite index, which combines both manufacturing and services, rose to its highest since October at 57.2. Also on the positive side, expansion of the non-manufacturing sector continued to grow in the US last month. The Institute of Supply Management’s non-manufacturing index rose above forecasts by 0.2 index points to 56.9, its strongest reading in three months. Strong employment data was more than enough to offset a marginal decrease in new orders. In other second-tier releases, mortgage applications were mostly flat last week, while the change in the number of employed people in the US rose in February by 212,000.

More jobless claims data out today will be followed by factory orders and a speech by FOMC member John Williams at 3pm.

Rest of the world

The National Bank of Poland became the 21st central bank to ease monetary policy this year when it slashed its interest rate 50 basis points to a historically low 1.5%.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.