US Dollar dips again, on course for worst quarter in five years
31/Mar/2016 • Currency Updates•
The US Dollar remained under pressure on Wednesday, depreciating against both the Euro and Sterling following comments from Federal Reserve Chair Janet Yellen, which pushed back expectations for the US central bank’s next interest rate hike.
Comments from fellow Fed member Charles Evans yesterday provided little relief for the Greenback. Evans, a historically dovish member of committee, claimed that an April Fed hike was a ‘high hurdle’, although the central bank could move in June if the labour market continues to improve.
The decline in USD came despite more encouraging economic data from the labour market, which showed the US economy added 200,000 public sector jobs in March. This bodes well for Friday’s crucial nonfarm payroll announcement.
Emerging market currencies benefited from a general weakness in the US Dollar. The South African Rand, in particular, strengthened as much as 2% at one stage, ending the London trading session as the best performing currency in the world.
Today bodes to be a busy day in the currency markets, with a number of potential market moving announcements. This morning, Governor of the Bank of England Mark Carney will be speaking in Tokyo, with investors looking for any mention of UK monetary policy. UK businesses should be aware of potential GBP/EUR and GBP/USD movement.
Eurozone inflation figures this morning will be closely watched. However, a significant disappointment would be required to convince the European Central Bank to ease monetary policy further, following its large scale measures announced earlier in the month. Headline consumer price growth is expected to tick upwards, although remain in negative territory at -0.1%.
It remains to be seen whether the ECB have exhausted their options on monetary policy. Some ECB members have been noting that any further changes, via a reduction in base rates or increased quantitative easing, will have little impact on the real economy or weaken the Euro to increase competitiveness.
Major currencies in detail:
Sterling hit a nine-day high early in the day on Wednesday but a late decline tempered gains, leaving the Pound just 0.1% higher against the US Dollar.
Economic announcements out of the UK were few and far between yesterday, with the currency mostly driven by external factors.
Concerns regarding a Brexit continue to dominate the Pound. Yesterday a former Cabinet Secretary warned that an exit from the EU at this summer’s referendum would take far longer than many are anticipating and could take up to ten years.
Revised UK growth figures this morning are unlikely to rock the boat and are expected to remain unchanged at 1.9% on an annualised basis. Attention instead will be on Mark Carney this evening and the monthly manufacturing PMI on Friday will also be a focus this week.
The Euro gained against both the Pound and the US Dollar yesterday, finishing 0.2% higher against the latter.
German inflation figures on Wednesday afternoon suggested that inflation in the Euro-area could surprise expectations this week. Consumer prices in Europe’s largest economy grew by 0.3% in the year to March, higher than forecast and greater than the flat reading recorded a month previous.
Earlier in the day, ECB member Benoit Coeure spoke in Frankfurt, claiming that negative rates in the Eurozone were not the Governing Council’s main policy instrument. Coeure also suggested that volatility between the Euro and Sterling could prove more worrisome for the Eurozone than that of EUR/USD.
Eurozone inflation figures this morning will be the highlight today, although the ECB’s meeting accounts just after midday could also prove to be a market mover.
The Dollar index declined again on Wednesday, falling by 0.15% amid delayed expectations for the next Fed interest rate hike. The Greenback is now on course for its worst quarter in five years, having fallen by 5% since the beginning of February alone.
Speaking on CNBC, Fed member Evans reiterated comments from Yellen, claiming increased global risks and low inflation make it unlikely that the Fed will hike rates in April. Evans did, however, claim he expects two rate hikes in the US this year, as is our expectation.
Economic data in the US today is relatively light on the ground, with the USD likely to be dictated by announcements elsewhere.
The main event in the US this week will be Friday’s labour report. Job creation is expected to exceed the 200,000 level for the sixth straight month.
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