USD: more positive economic data increases expectations of an interest rate hike

Although the US dollar weakened against the euro and sterling yesterday, this was largely down to events elsewhere. UK GDP figures convinced investors that interest rates will rise in November which strengthened sterling, while the ECB meeting later today looks set to confirm a change to the eurozone’s quantitative easing programme.

It was a good day for US economic data, as capital goods orders came in better than expected. In September, they increased by 1.3% which was much better than the 0.5% rise forecast. In addition, the figure in August was revised upwards from 1.1% to 1.3%. This data will only strengthen the belief that the Federal Reserve will increase US interest rates in December which should support the dollar, at least in the short-term.

US home sales were better than forecast too. They were expected to come in at 550,000, but they were actually 667,000. The US economy appears to be on the up. Today is a quiet one, but tomorrow sees the US GDP growth rate.

For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business trader on 020 7898 0500 or your Private Client trader on 020 7898 0541.