The US dollar demonstrated increased levels of volatility compared to last week, despite a quiet day in terms of tier one data releases. The US dollar continued to weaken against sterling due to the caution demonstrated by the Federal Reserve last week, even as it announced an interest rate increase. This could be compared with the Bank of England’s own rate decision last week which saw the first vote within the Monetary Policy Committee in favour of a rate hike. This one vote was easily beaten by the other committee members, but it shows a potential direction of travel for UK rates, especially with the higher-than-expected inflation. We will be monitoring what effect this will have on the GBP/USD exchange rate.
Unemployment Claims data will be coming from the US today. No major movements are anticipated off the back of this, but Federal Reserve Chairman Yellen is expected to deliver further remarks regarding US interest rates and further “dovishness” (i.e. caution) could cause the dollar to weaken.