Most currencies apart from Sterling benefit from US Dollar weakness

Enrique Díaz-Álvarez04/Apr/2016Currency Updates

The US Dollar dropped on Tuesday when Federal Reserve Chair Janet Yellen sounded a cautious note. Speaking in New York, Yellen focused on external risks to the US economy, including the economic slowdown in China and general volatility. As a result, markets are now pricing in just a 25% chance of an interest rate hike in June.

Interestingly, the rest of last week’s data was much more in line with what the Fed had been hoping for, especially the strong March payroll report.

In addition, last week’s market rally meant that US stocks actually managed to be up at the end of the first quarter, which was one of the concerns Yellen stated.

In the short-term we remain focused on the tone of Fed communications to validate the market expectations regarding future rate hikes. A key date this week is Wednesday evening, when the Fed will release the minutes from its most recent meeting.

Also of note last week was that unlike the Euro, Sterling failed to rally significantly against the US Dollar. We’ve observed UK exporters hedging their short Dollar exposure.

Major currencies in detail:


We’re a bit puzzled by the market overreaction to last week’s UK current account data. Most of the overshoot was due to the internal finances of UK-based multinationals and hence has relatively little macroeconomic significance.

Uncertainty regarding the outcome of the Brexit referendum is far more critical. Betting odds for a Brexit increased to a full 33% after the Brussels attacks. However, changing patterns in response rates mean that polls are generally less reliable than they used to be, as was painfully evident after the last Parliamentary elections.

Wednesday’s Dutch referendum on the EU agreement with Ukraine will probably bring a sharper focus on the UK’s own referendum. We’ll be paying close attention to the reaction in Sterling.


While the Euro rallied strongly against the US Dollar last week, we expect market focus to shift back to the Eurozone’s political risks in the near term.

The Dutch hold a referendum on Wednesday on whether to approve the EU’s treaty with the Ukraine. The referendum is non-binding but a rejection of the agreement would serve to highlight increasing discontent with the EU.

The revelation that IMF officials believe another ‘crunch time’ will be necessary to force the EU to accept a debt reduction in Greece, and the continued lack of agreement on a new Spanish government, all highlight that political risks are not confined to the possible Brexit and may soon begin to weigh on the common currency.

Political rather than macroeconomic news is likely to dominate European currency trading over the next few weeks.


Friday’s US payroll report strengthened the US Dollar and managed to stop the Euro’s relentless rally.

Pretty much everything the Fed needs to see was in there. Payrolls increased by 215,000 in March, wage growth rebounded and labour force participation ticked up to 63%.

Focus now shifts to the minutes of the Fed’s March meeting.

However, this has already been largely overshadowed by strong economic readings and a sharp market rally, which has enabled US stocks to erase all their losses in 2016. Therefore, two of the key concerns for the Federal Open Market Committee’s more dovish members have been significantly neutralised.


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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.