US dollar weakens from sterling strength and interest rate speculation

The US dollar began this week on the front foot – buoyed partly by whispers of a potential interest rate hike later this year as well as the relative weakness of its major currency pairs (particularly sterling). However, as we got deeper into the week, this trend began to reverse.

Wednesday’s Federal Open Market Committee (FOMC) minutes suggested that the chances of a US rate rise this year may not be as clear cut as originally suggested. A December rate hike is still in discussion, but the published minutes suggest a very mixed opinion from the FOMC’s members. This, coupled with much stronger than expected UK retail sales figures, contributed to sterling gaining some much needed strength over the US dollar on Thursday.

Thursday also saw US unemployment claims post a marginally better than expected figure of 262k. This is admittedly not as influential as the non-farm payrolls on the first Friday of every month, but it was a welcome breath of fresh air after recent mixed data from the US – although unfortunately did not have much of an impact on the American currency’s strength.

With the US presidential elections nearing, it would be a surprise to see any major policy changes during Barack Obama’s last few months in office; however, this week has started to set the tone for the drivers of the US dollar over the coming months.

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