Dollar sent lower after mixed signals from Federal Reserve
20/Aug/2015 • Currency Updates•
The Pound approached its strongest value in seven-and-a-half years against its basket of currencies yesterday morning, with investors continuing to ramp up bets on an interest rate hike early next year. The currency ended 0.1% higher versus Greenback following the FOMC meeting.
Speculation surrounding monetary policy was amplified in early morning trading following hawkish comments from outgoing Bank of England policymaker David Miles on Tuesday night. Miles claimed that rates were likely to rise “pretty soon” and would gradually increase towards a “new normal” between 2.5-3%. Similarly hawkish comments from a number of Bank of England rate-setters has brought forward expectations among households for a rate hike in the UK, according to the latest survey from Markit. The survey, released yesterday, showed that 48% of households now expect the Bank of England to raise rate in the next six months, up a staggering 34% from the same survey in July. This is the highest figure since mid-2014 amid an overall improvement in economic conditions in Britain.
Retail sales figures out in the UK this morning will be the focus of the day’s trading in Britain. Consensus points to another strong reading around the 4.5% growth mark. This will be followed by the CBI industrial trends survey at 11am.
A strong day’s trading for the single currency saw gains of 0.5% against the Greenback after the Federal Reserve minutes.
There were mostly just second-tier economic announcements in the Eurozone on Wednesday. Construction output for June fell unexpectedly, casting further doubts over the health of the Eurozone economy. Output declined by an annualised 2.3%, its lowest reading since March after a sharp fall in German output, down by 4.5%. Month-on-month construction declined by 1.9%, its steepest drop-off since the beginning of 2013. Such weak data does not bode well for overall growth within the Euro bloc, which registered just 0.3% in the second quarter.
Meanwhile, Germany voted overwhelmingly in favour of approving the Greek bailout package by 454 votes to 113. However, finance minister Wolfgang Schaeuble claimed that there was no guarantee the third bailout would work, while stressing it would be irresponsible not to give Greece the opportunity for a fresh start.
Economic events continue to be at a minimum in the Eurozone this week. Germany’s producer price index is set for release before UK markets open, the only major data release today.
The US Dollar was sent lower last night after mixed signals from the Federal Reserve.
The main announcement in the US during London trading yesterday came in the form of inflation figures for July. The data from the US Bureau of Labor Statistics came in mostly in line with expectations, with consumer prices rising modestly by 0.2% in the year to July, slightly higher than the 0.1% expansion recorded in June. This marked the second straight month consumer prices had increased following the recent plunge in oil prices that pushed inflation into negative territory in January. On a monthly basis, prices rose by just 0.1%, marginally down on forecasts following an increase in gasoline and food prices, as well as solid gains in shelter costs. The core measure of price growth remained at 1.8% for the fourth time in the past five months.
A busy day in the US culminated in the release of the FOMC minutes last night. The Dollar was sent lower after mixed messages from policymakers. On the hawkish side, the Federal Reserve minutes said a rate hike was “approaching”, however, “almost all members” indicated they needed more evidence of sufficiently strong economic growth. Moreover, muted inflation that has not yet moved towards the Fed’s target meant that just one policymaker was ready to vote for a rate increase last month.
Movement in the US Dollar today will likely centre on fallout from last night’s FOMC minutes. Today we will also see the release of jobless figures and the Conference Board’s leading indicator, all of which could cause moderate volatility.
Rest of the world
The Turkish Lira remained in the spotlight, dropping to a new low after attacks in Istanbul.
Meanwhile, Vietnam devalued its currency, the Dong, for the third time this year in a bid to bolster the country’s export sector.