Currency markets continue to be driven by oil prices and their effect on inflation

Enrique Díaz-Álvarez09/Dec/2015Currency Updates

Commodity currencies were sent into a spin yesterday when the price of crude oil fell to a fresh six-year low. Despite a rebound in oil prices late in the day, commodity currencies experienced a sell-off across the board for the second straight day.

The Norwegian Krone declined to a 13-year low, while the Canadian Dollar touched a fresh 11-year trough.

While drivers will be enjoying a decrease in the cost of petrol at the pumps, the investment community now questions how quickly the Bank of England will be able to increase interest rates next year. At the same time investors are firmly placing bets on the Federal Reserve increasing interest rates in the US next week, which is expected to send the Dollar higher. For UK importers, US Dollar strength is continuing to cause issues as the cost of overseas goods and services increases, a trend which we expect to continue for a while.

The Pound remained under pressure following mixed economic data, including an unexpectedly sharp decline in manufacturing production which does not bode well for final-quarter economic growth.

Across the Pond, further solid data out of the US labour market provided more evidence that the Fed will likely increase its interest rate this month. We now see this as almost a certainty, with market pricing currently just shy of 80%.

Elsewhere, the New Zealand Dollar was driven lower for a second day on a growing expectation that its central bank will be cutting its benchmark interest rate this evening.

Major currencies in detail:


Sterling continued its march downwards against the US Dollar, ending yesterday’s London session 0.15% lower versus the Greenback.

The Pound’s decline yesterday was in part connected to expectations for a BoE interest rate hike in 2016, with the sharp decline in global energy prices over the past few days likely to make it even harder for the central bank to begin raising rates any time soon.

Yesterday’s decline was intensified by mixed production data in the morning. Data released from the Office for National Statistics showed that UK manufacturing production fell in October from the previous month. Output was down by 0.4%, which was worse than expected and much lower than the 0.9% increase that was recorded the month previous, with a strong Pound in trade-weighted terms clearly a driving factor.

By contrast, industrial production impressed, increasing by 1.7% on an annualised basis. And the NIESR GDP estimate suggested that the UK economy grew by a healthy 0.6% in the three months to November.

There will be limited economic data of note this morning, with house prices from Halifax the only release in the UK.


The Euro continued to climb against the US Dollar yesterday, up by 0.1% with investors still focusing on the underwhelming ECB announcement last week.

With much of Europe observing a holiday on Tuesday, trading was relatively thin on the ground. The latest revision in third-quarter growth for the Euro-area came in right in line with expectations, with the Euro unmoved as a result. The economy was confirmed to have grown by 0.3% in the third quarter, driven predominantly by household spending and a build-up in stock. The recovery was stunted, however, by imports rising at a faster pace than exports and flat investment.

ECB member Jozef Makuch also spoke regarding last week’s ECB meeting, claiming decision-making by the Governing Council will not be driven by market expectations but by the Euro-area’s inflation target.

German trade data this morning will be the main focus for the Euro during trading today, with a lack of major economic announcements likely to lead to minimal Euro volatility.


With a lack of any major announcements among the main economies yesterday, the US Dollar was barely moved during the London session, ending unchanged.

The latest JOLTS job openings data provided a further indication of a robust performance in the US labour market. The monthly measure dipped marginally from 5.526 million to 5.383 million in October, although remained strong, and provided further fuel to the argument that the Fed will begin tightening monetary policy this month.

Meanwhile, economic optimism among small businesses in the US continues to be on the rise. Boosted by an improvement in overall economic conditions, the survey rose to 47.2 this month from 45.5 the month before.

Today bodes to be a similarly quiet day in the US economy, with mortgage approvals and wholesale inventories the only tier-2 data releases.


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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.