US Dollar falls further as markets delay Fed rate hike expectations
07/Jun/2016 • Currency Updates•
The US Dollar dipped again against its major peers on Monday, with financial markets continuing to discount the possibility of an interest rate hike by the Federal Reserve this month, following on from last Friday’s dire nonfarm payrolls report.
Speaking in Philadelphia at a testimony on monetary policy, Fed Chair Janet Yellen all but confirmed that the central bank would be keeping rates unchanged at its meeting next week. Yellen indicated that the current monetary policy setting remained ‘appropriate’ amid a disappointing labour report and global uncertainties, including Britain’s EU referendum later this month.
This comes as a significant disappointment to businesses clamouring for higher rates in the US. Just two weeks ago many Fed officials had hinted that as many as three US rate hikes were still possible before the end of the year.
Meanwhile in the UK, focus remains firmly on the EU referendum with a little over two weeks to go until polling day. The Pound shrugged off the release of the latest opinion polls yesterday which showed a slight lead for the ‘leave’ campaign. An ICM poll showed 48% were in favour of leaving the EU, with just 43% opting to stay.
A TV debate featuring David Cameron this evening could prove significant, given the magnitude of this month’s vote. Despite the closeness of the polls, we remain of the opinion that the ‘remain’ vote will attract more support than the polls are currently giving credit.
Eurozone growth figures this morning are expected to remain unrevised, although any negative surprises could heap pressure back on the Euro today. The single currency looks set to be driven more by expectations for interest rate hikes in the US in the near term, rather than ECB monetary policy, which is likely to remain unchanged until at least September.
Major currencies in detail:
Sterling rallied by 0.6% against the US Dollar yesterday amid delayed expectations for Fed rate hikes.
The Pound remains heavily dependent on the polls, particularly as the referendum vote draws near. Much like the Scottish referendum in 2014, financial markets are now beginning to follow TV debates as polling day approaches. This Thursday’s ITV debate, featuring a number of the senior figures from both sides, could therefore prove significant for Sterling this week.
With no major economic data today, attention will remain heavily on expectations for the EU referendum vote on 23 June. Investors will also have one eye on the latest manufacturing and industrial production figures, to be released on Wednesday.
Despite little in the way of economic data in the Eurozone, the Euro ended the London session 0.25% higher against the US Dollar on Monday.
The Euro did, however, receive a slight boost from the latest round of economic sentiment data from Sentix. The monthly index rose more than expected to its highest level so far this year, jumping to 9.9 from 6.2 in May.
This comes after a series of robust economic data in the Euro-area as well as the lack of additional monetary stimulus from the ECB at last week’s meeting.
GDP figures are expected to remain unrevised at an annualised 1.5% this morning. German trade figures later in the week are next on the horizon for the Euro.
The US Dollar depreciated by 0.3% versus its major counterparts following Yellen’s comments yesterday.
Yellen all but cemented our expectations that the Fed would hold fire this month. While she highlighted last week’s poor labour report, her message that the US economy was performing well remained intact.
The economy in the US is making progress towards full employment, while inflation is expected to continue to pick up this year, suggesting that the prospect of a July hike remains live.
Economic data looks relatively light in the US today. Nonfarm productivity figures this afternoon could be worth noting, although will unlikely have a significant impact on the Dollar.
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