US Dollar soars to twelve year high as investors bet on rate hike

Enrique Díaz-Álvarez12/Mar/2015Currency Updates


Sterling touched its weakest position against the Dollar in twenty months on Wednesday amid growing speculation the US will hike rates soon. The Pound plunged by 1.1% on the Greenback.

Industrial production in Britain continued to fall in January, declining by 0.1% compared to a month earlier. However, over the course of a year, industrial production still managed to climb as forecast by 1.3%. Meanwhile, Manufacturing also fell after a plunge in output of computers, electronics and optical products dragged the month on month figure down by 0.5% to send the annualised change to 1.9%, significantly lower than the 2.6% that was anticipated. The ONS report shows that in the three months to January, industrial and manufacturing production remained 10.4% and 4.8% below their pre-recession peak. Current Sterling strength, especially versus the Euro, appears to be affecting UK manufacturing exporters. However, oil and gas production recovered in the first month of the year, climbing by 2.4% MoM. In line with this mostly disappointing data, an estimate of GDP growth, as released by the National Institute of Economic and Social Research, came in lower at 0.6%, after January’s figure was also revised downwards.

Elsewhere, Bank of England hawk, Martin Weale spoke in London yesterday afternoon, stating he envisaged a sharp fall in Sterling due to the UK’s large current account deficit. Focus within UK markets today will be at the release of trade balance data at 9.30am.


The Euro continues to free-fall to new lows against its major peers. The single currency sunk to a twelve year low against the Greenback, falling by 1.3%.

President of the ECB Mario Draghi spoke at a conference in Frankfurt on Wednesday morning, striking a distinctly optimistic tone. Draghi audaciously claimed quantitative easing was already protecting Eurozone countries from the Greek crisis, while highlighting a reversal in the growth slowdown and expectations for a rebound in downward inflationary pressures. In other second-tier data on Wednesday, nonfarm payrolls in France remained static in Q4 of last year, while the current account in Europe’s second largest country remained in deficit at – €0.3 billion.

Today bodes to be a busy day in the Eurozone economy. Inflation figures in Germany, France, and Spain in early morning trading will be followed by industrial production data at 10am London time.


The Greenback continued its remarkable surge during London trading yesterday, with the US Dollar index hitting a twelve year high after climbing by 1.1%. Despite a lack of any tier 1 data yesterday, investors continue to bet on a Federal Reserve interest rate hike in the coming months. The index has now climbed by over 17% since November.

Mortgage applications dipped marginally last week, the fourth week of negative growth in the last five weeks. The leading housing market indicator in the US was 1.3% lower for the week ending 6th March. Oil in storage in the US expanded for the ninth consecutive week by 4.5 million, causing the price of oil to fall to a five week low. Elsewhere, yesterday evening, the Federal Reserve announced the results of its stress test. The Bank of America was one of six major banks to stumble during the round of tests.

Today looks set to be a busy day in the US with a number of significant data releases due out. Retail sales for February at 12:30pm and Business Inventories at 2pm, both GMT, are likely to cause movement in the Dollar.

Rest of the world

The IMF has approved a $17.5 billion loan program for Ukraine in order to help the country avoid default, amid the ongoing conflict with pro-Russia rebels.


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.