Sterling declines again, US Dollar rally slows after Fed minutes

Enrique Díaz-Álvarez07/Jan/2016Currency Updates

The Pound fell against the US Dollar for the third straight session this week on Wednesday. Sterling declined to a fresh nine-month low after the latest Services PMI from Markit suggested that the UK’s dominant service sector grew at a slower rate in the final month of 2015.

This raises further concerns that overall economic growth in Britain is slowing. Bloomberg reported this morning that Chancellor of the Exchequer George Osborne will talk about the UK economy facing a ‘dangerous cocktail’ of global threats in a speech later today.

Last night, the minutes from the Federal Reserve’s December meeting weighed on the US Dollar. The minutes suggested that last month’s rate hike was a ‘close call’ for many of the committee members, with policymakers clearly concerned about uncertainty surrounding a pick-up in inflation.

The tone of the minutes was very similar to that of last month’s statement. ‘Almost all’ members of the Federal Open Market Committee (FOMC) were satisfied that conditions for monetary policy normalisation had been meet. However, the minutes continued to stress no more than gradual, data-dependent rate hikes going forward.

This, in our view, should lead to a gradual appreciation of the US Dollar against almost every major currency.

There was some impressive economic data in the Eurozone yesterday, with a moderate improvement in Euro-area service sector growth meaning the single currency was able to hold its own against the US Dollar.

Away from the G3 currencies, the Chinese Yuan eased to its weakest position since March 2011 amid concerns surrounding a slowdown in the Chinese economy. In the offshore market, the currency fell to its lowest level since trading began in 2010.

Major currencies in detail:


Another weak trading session for the Pound saw the currency decline by 0.2% against the US Dollar.

Sterling received little help from economic data yesterday, with the release of the latest Services PMI providing another underwhelming reading. The index fell to 55.5 from 55.9, suggesting that the overall economy only expanded modestly in the final three months of the year.

The UK economy now looks set to have expanded by around 0.5% in the fourth quarter, marginally down on last month’s 0.6% estimate. This will be bad news for Bank of England hawks, and provides further evidence that the central bank is unlikely to begin hiking interest rates until the second half of the year.

Today’s trading session will be muted in terms of economic data, with investors already having one eye on next week’s Bank of England meeting.


The Euro recovered across the board on Wednesday, ending higher against both the Pound (+0.5%) and US Dollar (+0.45%).

Despite a handful of countries observing a bank holiday due to Epiphany day, there was a string of economic announcements in the Eurozone for investors to digest. The latest services PMIs were mixed.

Slowdowns in France and Spain were offset by strong expansion in Germany and Italy, and the overall index was able to increase to 54.3 from 53.9. There was also further evidence of a lack of inflationary pressure, with the producer price index remaining unchanged, deep in negative territory at -3.2% last month.

Today bodes to be another busy day in European markets, with a number of economic releases to look out for. Retail sales, consumer confidence and unemployment figures at will be followed by the European Central Bank’s monetary policy meeting accounts at 12:30pm.

Investors will be looking for rationale behind the lack of additional monetary easing at the December policy meeting.


The US Dollar index was mostly unchanged following mixed economic data, although dipped by 0.3% last night following the Fed minutes.

The latest ADP employment change figure, which measures the number of jobs added in the US private sector, increased more than expected in December to 257,000 from 211,000, and bodes well for Friday’s crucial nonfarm payroll report.

Similarly, the trade deficit also narrowed modestly to around $42 billion after goods imports neared a five-year low. Meanwhile, the non-manufacturing sector slowed from an index of 55.9 to 55.3, according to ISM.

Today should be relatively quiet in the US, with no major economic 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.