US Dollar rallies ahead of tonight’s FOMC minutes

Enrique Díaz-Álvarez08/Jul/2015Currency Updates


Despite some encouraging industrial output and economic growth estimate data, the UK currency suffered yesterday as a result of broad US Dollar strength. The Pound depreciated by 0.65% to a four week low versus Greenback.

Data from the Office for National Statistics painted a mixed picture of the UK economy when released yesterday morning. Encouragingly, industrial production increased by 0.4% in May, and by an annualised 2.1%, well above forecasts. This unexpectedly sharp increase was fuelled by strong oil and gas production, which has been given a boost of late by a stabilisation of global oil prices. Oil and gas output surged by 7.3%, marking its largest increase in more than a year. However, in contrast Britain’s manufacturing sector lost momentum during the same time period. Manufacturing output declined by 0.6%, down to just 1% growth on the same time last year, due to a combination of weak demand from the Eurozone and a strong value of Sterling in trade weighted terms.

Meanwhile, the overall UK economy picked up speed in the second quarter according to forecasters at the National Institute for Economic and Social Research. The latest GDP growth estimate for the three months to June was 0.7%, up from the previous 0.6% in May. This increase is in line with our expectations that the Bank of England will start hiking interest rates in Q1 2016.

While unlikely to cause a huge amount of volatility in Sterling, this afternoon George Osborne will be presenting the first all-Conservative summer budget statement in almost twenty years at 1.30pm.


The Euro declined to a five week low against the Dollar during the London session, although recovered in the evening to finish the day around 0.1% higher, following Greece debt talks.

Eurozone finance ministers continued discussions in Brussels surrounding the Greek crisis, with Greek Prime Minister Alexis Tsipras launching a desperate bid to win fresh aid from creditors. Remarkably, given the importance of the situation, the Greek government failed to present a written request. Greece now has until Thursday to present proposals, ahead of a full EU summit on Sunday of all 28 members of the European Union. European Council President claimed this was the “most critical moment in the history of the Eurozone”. This week it seems, looks set to be the final deadline for the country.

Inevitably, Greece will once again be in focus in the Eurozone throughout today. This will be amplified considering the lack of any major data in the Euro-area.


The Dollar rallied against most of its counterparts, ending 0.3% higher against its trade weighted basket of peers.

These gains were despite the trade deficit in the US increasing modestly in May, due to a slowdown in exports as a result of a stronger Dollar and uncertainty abroad. According to the Commerce Department, the deficit increased by 2.9% to a seasonally adjusted $41.9 billion following a 0.8% decrease in exports and a moderate 0.1% decline in imports. This does not bode well for economic growth, given trade cut 1.9% off GDP in the first quarter and has weighed on economic output in four of the previous five quarters.

Elsewhere, the latest JOLTS job openings figures ticked up to a fresh record high in May, up from around 5.33 million in April to just over 5.36 million. The largest increase in job openings occurred in retail trade and business services, and provides further proof that the US labour market is currently in a strong position.

Market focus in the US will shift away from Greece this evening to the release of the monetary policy minutes from last month’s Federal Reserve’s monetary policy meeting. The minutes as always have potential to be a big market mover, with traders looking to gain an insight into the timing of the next interest rate hike.

Rest of the world

A host of both G10 and emerging market currencies lost ground yesterday due to the Dollar rally. NOK, BRL, ZAR, and PLN all suffered big losses of over one percent, with emerging market currencies touching multi-week lows across the board.


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.