Dollar sell-off takes a breather ahead of FOMC minutes
19/May/2015 • Currency Updates•
Sterling ended yesterday 0.2% lower against a broadly stronger US Dollar, losing some of its post-General Election gains.
A lack of economic releases led to a quiet day’s trading. Attention among investors has instead turned to the planned cuts in public spending. Last Friday Chancellor of the Exchequer George Osbourne announced that he would soon be detailing how he plans to make further large cuts in spending, but it remains to be seen where and how deep these cuts will be. Such austerity measures could potentially delay an interest rate hike from the Bank of England.
Today will see a busy morning in the UK economy, with a handful of economic releases from the Office for National Statistics. Core and headline inflation data for April will be worth noting, with any surprises likely to cause volatility in Sterling. This will be followed by the Bank of England minutes on Wednesday. The release of the Inflation Report last week means new information is likely to be limited, and the vote on the interest rest rate hike is expected to remain unanimous.
The single currency fell against both its major peers on Monday, down by 0.5% against the Dollar and by 0.3% versus the Pound.
Similarly to the UK, Monday was a very quiet session in the Eurozone in terms of economic announcements. The trade surplus in Italy did, however, decline in March as growth in imports outpaced the increase in exports according to statistical office Istat. The surplus fell to 3.89 billion Euros in March, down from 4.46 billion Euros.
A lack of data meant attention once again was firmly on Greece. The Greek government voiced hopes of reaching a deal with its Eurozone creditors by the end of May. The two parties have been locked in negotiations for four months, with issues yet to be resolved including pension cuts, a growth plan, primary surplus target, and debt restructuring. A government spokesman warned a deal was “required immediately”, with the country reported to be just a matter of weeks away from running out of money.
A revision of April’s inflation figures is likely to confirm prices were unchanged in the Eurozone last month, when released at 10am this morning. This announcement will coincide with trade balance data from Eurostat.
The US Dollar gained across the board as markets opened for the week in London yesterday, after several weeks of almost continuous sell-off that brought the Greenback to three month lows. This came amid speculators continuing to push back their expectations for an interest rate hike in the US. The Dollar index rose by 0.5%.
There was only one major economic release yesterday in an otherwise subdued day in the US. Sentiment among US homebuilders declined below forecast last month according to the National Association of Home Builders. The housing market index fell to 54 from a previous 56, with consumers exhibiting caution as the US approaches an interest rate hike this year. Earlier Federal Reserve member Charles Evans claimed the central bank could look at a rate hike in June if the economy was strong enough.
Today will see another mostly data light day in the US economy. Building permits and housing starts from the US Census Bureau at 1.30pm GMT the only announcements of any note. Attention this week will be focused on the Federal Reserve minutes from its May meeting at 7pm on Wednesday evening.
Rest of the world
The latest release of Denmark’s foreign exchange reserves on Monday suggests that the Danish central bank’s aggressive negative interest rate policy has been successful in deterring speculation against the Euro peg. Net reserves went down by 32 billion DKK, a positive result that implies speculators are cutting their long DKK positions as the Danish central bank wishes.