US Dollar stalls despite impressive durable goods orders
27/May/2016 • Currency Updates•
The US Dollar slipped from its ten-week high on Thursday, halting a bullish few weeks for the currency during which it had rallied to its strongest position versus the Euro since mid-March.
This rally follows increased speculation that the Federal Reserve could hike its interest rate for the second time at either its June or July meeting.
Yesterday’s depreciation of the Dollar was made all the more surprising by an impressive set of durable goods orders, which suggested that the moderate slowdown in US economic growth could prove a temporary blip.
International firms with US Dollar exposure will now look to a speech this evening from Fed Chair Janet Yellen. Any hints from Yellen that suggest the Fed could hike in the next couple of months will very likely recommence the US Dollar’s upward trend against most major currencies today.
Despite recent opinion polls in the UK firmly suggesting next month’s EU referendum looks on course to yield a ‘remain’ result, the cost of hedging against movements in Sterling rose to a seven-year high yesterday.
Currency options continue to show investors are taking no chances ahead of next month’s vote, reflecting a strong demand from those betting on Sterling depreciation. Many analysts, ourselves included, are projecting a sizable retreat in the Pound should the UK opt to leave the EU next month.
Earlier in the day, Sterling weakened slightly following an unexpected downward revision in first quarter economic growth figures.
Revised first quarter growth data for the US economy will be worth watching out for this afternoon ahead of Yellen’s speech in Washington at 15:00 UK time. A positive surprise in US GDP today would continue to support the argument for higher rates across the Pond.
Major currencies in detail:
A downward revision in first quarter growth yesterday sent the Pound 0.25% lower against the US Dollar.
Despite the recent uncertainty in the run-up to next month’s referendum, UK consumers remained resilient in the first quarter of the year, according to Thursday’s revised growth figures.
The economy expanded by 0.4% in the quarter, although by only 2% on a year previous rather than the 2.1% originally quoted. Investment fell by 0.5% in the quarter, while net trade slashed 0.4% off overall GDP, highlighting the UK’s continued dependence on domestic demand to fuel growth.
The next week or so looks relatively light in terms of economic data in the UK, especially given the short trading week with Monday’s bank holiday.
A lack of any major announcements ahead of next week’s ECB meeting meant the Euro was little changed again yesterday, ending 0.2% higher against the US Dollar.
The only announcement of any significance in the Eurozone on Thursday came in the form of Spanish growth figures which remained impressive amid growing consumer spending. Spain’s economy, the fourth largest within the Eurozone, expanded by 0.8% in the first three months of the year, with solid household consumption providing support for the country grappling with political deadlock.
Economic announcements remain light again today, with consumer confidence in France and Italy unlikely to impact the Euro. Attention will turn to next week’s ECB interest rate decision.
Losses against the Euro and the Japanese Yen sent the US Dollar index 0.1% lower on Thursday.
The depreciation of the Dollar came despite a surge in durable goods orders in April, which jumped by 3.4%. The larger-than-expected increase paints a fairly decent picture of domestic demand in the US, although overall demand so far this year remains relatively soft in the world’s largest economy.
Initial jobless claims also impressed again on Thursday, falling for the second week to 268,000 and extending its record stretch below the benchmark 300,000 level. Claims for jobless benefits had, as recently as last month, hit a four-decade low, emphasising the strong performance in the US labour market of late.
Trading will be cut short across the Pond as well next week, with US markets closed on Monday in mark of Memorial Day.
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