Dollar dips slightly as US economic growth slows in third quarter
30/Oct/2015 • Currency Updates•
With Wednesday night’s Fed statement now out of the way, focus for both UK and overseas businesses with exposure to the major currencies has now shifted firmly to upcoming economic data out of the US economy.
The FOMC’s insistency this week of a data-dependent December hike now means that major economic releases across the pond take on even more added importance and could therefore affect the long-term evolution of the US Dollar. UK and overseas businesses with an exposure to the currency should treat this currency with caution until volatility levels go down.
The Greenback was sent lower against almost every G10 currency yesterday afternoon following the release of relatively underwhelming economic growth data for the third quarter. The data suggested that the US economy may not have weathered the storm of global economic headwinds as well as first anticipated.
While bad news on the surface for Fed hawks, strong domestic demand, which grew by 3.2% in the quarter, should provide encouragement for a December rate hike, and thus provide strong long-term support for the US currency. Markets seem to be in agreement, and are now pricing in over a 50% chance of this taking place. In fact, the Dollar’s depreciation yesterday was relatively mild, with the currency still trading well above pre-FOMC meeting levels.
Focus today will be on Eurozone inflation data this morning, with any negative surprises likely to raise bets of an expansion to the quantitative easing programme before year-end. Companies with exposure to the Euro should keep a close eye on developments as, despite positive inflation out of Germany and increased business confidence, the Euro hasn’t managed to make much headway in the wake of the ECB press conference, and looks set for further depreciation.
Major currencies in detail:
On Thursday Sterling recovered much of the ground lost following Wednesday’s Fed announcement, appreciating by 0.25%, despite only second-tier UK data.
There was some Pound-positive housing data, which showed UK house prices rose by 3.9% in October, according to Nationwide, broadly consistent with the level of wage growth. This comes after house price growth fell to a two-year low of 3.2% in August, although it remains well below last year’s peak of 11.8%.
By contrast, approvals for mortgages in the UK fell for the first time since May, according to the Bank of England. Approvals dipped by just under 2,000 to 68,874.
Meanwhile, the CBI’s trade survey showed that UK retail sales slowed this month. The index declined from a reading of 49 to 19, well below forecasts, following a slowdown in the pace of growth in sales and orders at high street retailers.
UK consumer confidence data released overnight is the only announcement today. This is unlikely to have a significant impact the Pound.
Weak data in the US was good news for the Euro yesterday, which rebounded modestly by 0.35% against the Dollar.
Yesterday proved to be a heavy day of Eurozone data releases for traders to digest. Euro-area business confidence rose slightly more than expected, despite concerns that a slowdown in China and other emerging market countries could hinder the area’s recovery. The business climate index increased from 0.36 to 0.44, its highest level in the past three years.
Meanwhile, there were positive signs of inflation in the German economy. The consumer price index for October printed flat in Europe’s largest economy, an improvement from last month’s negative print after prices increased by 0.3% for the month. This bodes well for today’s Eurozone-wide inflation figures. Earlier in the day, German unemployment remained unchanged at 6.4%, with the Euro barely moved by the news.
The US Dollar dipped marginally against its major peers yesterday, with the US Dollar index 0.2% lower following disappointing growth data.
US economic growth for the third quarter fell to 1.5% annualised, according to the Commerce Department, less than forecast, and significantly lower than the second quarter’s 3.9% expansion. The main drag on the economy came from businesses stockpiling inventory, although this could prove to be a temporary phenomenon.
Despite this miss, consumer spending continues to perform strongly, boosted by cheap petrol costs and improvements in the housing and labour markets. However, as always, growth data is prone to revision and runs on a moderate lag, with many indicators already pointing to stronger expansion in the final three months of the year.
Elsewhere, jobless claims figures boded well for next week’s labour report, printing an impressive 260,000 for the week. The four-week average fell to yet another fresh 42-year low.
There’s plenty of data to end the week in the US, with personal spending and income data at 12:30pm GMT the main focal point.
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