Currency Note

US dollar capitalises on weak start for sterling and euro

By Smart Currency August 31st, 2016

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The US dollar strengthened against major peers like sterling and the euro yesterday as UK markets reopened after a three-day Bank Holiday weekend. Positive sentiment from the US and poor data from the UK and Eurozone combined to give the US dollar a boost.

Talk of a US potential interest rate hike is likely to toy with the US dollar’s performance in coming weeks. With the ripple effect that the US dollar has on other currencies, it is still crucial that international payments are managed in order to save money and minimise the risk of unfavourable rates. Contact us today to find out how.

UK housing data continues to disappoint

Sterling gave back the early gains it made against the US dollar after poor data from the UK and the release of positive US data yesterday. Housing and lending data in the UK continued to disappoint, but as the slump has been already well publicised, it had limited effect on sterling as the UK currency managed to hold its ground during the morning trading session. The number of mortgages being approved is at its lowest for a year and a half, according to Bank of England (BoE) figures. The figures represented the slump for July, the first full month after the Brexit vote.

Meanwhile, across the pond we saw US consumer confidence rise to the highest level in nearly a year in August. This strengthens the case of a diverging interest rates between the UK and US as the market continues to ponder will the UK cut rates further and when will the US next hike interest rates.

It is a quiet day in terms of data from the UK today, with just the Nationwide house price index set to be released. Most of the focus in terms of UK data will be on Thursday and Friday with the manufacturing and construction Purchasing Managers’ Indices (PMIs) being released respectively.

Euro weakened overall in mixed day for data

A combination of positive and negative data releases for the Eurozone yesterday saw the euro, at one stage, lose half a cent against sterling. Although the Spanish flash CPI came in at 0.4%, better than forecast, the German preliminary Consumer Price Inflation (CPI) figure came in at 0.0% and drove euro weakness. A similar but less exaggerated impact was seen against the greenback, as the pair continued to trade under 1.12.

Today will see the release of German retail sales figures which are forecast to improve significantly on last month at 0.5%. Further German data will come later in the day, in the form of German unemployment change, forecast at -2,000. The Eurozone will also release core and flash CPI data – both are due to remain unchanged from the previous month.

US dollar strengthens on sentiment

Sterling weakened against the US dollar as the different strategies being implemented by the respective central banks moves them apart. The US Federal Reserve is potentially going to increase its interest rate whilst the BoE may cut its again. Investors are now pricing in a 55% chance of a rate hike by the US before the end of the year. Since hitting a three-decade low in July in the wake of the vote for Brexit, sterling has since only recovered 2%, leaving it still 12% lower than before the vote.

The dollar strengthened yesterday to a two-week high against a basket of currencies as the markets looked towards the key job data figure this Friday. The figures are expected to show that a further net 180,000 jobs have been added, and a higher figure would only heighten expectations of an interest rate hike. Only a significant miss is likely to weigh on the dollar.

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