US Dollar falls to seven week low, Sterling jumps to fresh highs

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26 January 2017

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The US Dollar slumped to its weakest position in seven weeks against its trade-weighted basket of currencies on Wednesday as investors continued to fret over new US President Donald Trump’s focus on protectionist policies.

T
rump re-emphasised his plans to build a wall on the border between the US and Mexico yesterday, the country’s second largest export partner. Traders have so far been left disappointed by Trump’s focus on potentially economically harmful policies and his lack of clarity over future fiscal spending plans – one of the main driving forces behind the Dollar’s sharp rally following November’s election.

Broad US Dollar weakness provided a boost to Sterling on Wednesday, which spiked higher to its strongest position against the greenback in seven weeks. The Pound has received good support since Theresa May’s high profile Brexit speech last week, and then again from Tuesday’s High Court ruling which announced the Scottish Parliament would not have a say on when the UK can begin formal talks to leave the European Union.

Currency markets this morning will turn their attention to the preliminary fourth quarter GDP numbers out of the UK. The UK economy is expected to have slowed modestly to 0.5% in the final three months of last year, when released today.

Among emerging markets, the Turkish Lira ended the session as just about the worst performing currency in the world after a 75 basis point rate hike by the Central Bank of Turkey failed to impress investors hoping for a 100 basis point hike. Sentiment towards the currency has been further dampened by expectations that Fitch credit ratings agency will downgrade Turkey’s status to junk on Friday.

Major currencies in detail

GBP

The Pound soared by 0.5% against the Dollar yesterday, buoyed by broad USD weakness.

Investors also remained confident of a strong US/UK trade headline in the coming days, which providing additional support for the Pound on Wednesday. Theresa May is set to become the first foreign leader to visit Donald Trump, exactly one week after his inauguration on Friday.

Governor of the Bank of England Mark Carney also spoke in Germany yesterday, although added nothing in terms of monetary policy. The BoE will next meet on Thursday 2 February.

This morning’s GDP numbers will be the main economic data release in the UK this week.

EUR

The Euro rose 0.2% against the Dollar on Wednesday as concerns over Donald Trump’s protectionist policies helped boost the single currency. The currency continues to trade around its strongest position since December.

Business confidence in Germany unexpectedly dropped this month. The latest business climate index from IFO on Wednesday slipped to 109.8 from 111.0, falling well short of the 111.3 consensus.

The Business Expectations Index, which measures attitudes toward business prospects over the next six months, also unexpectedly fell to 103.2.

The monthly German consumer confidence data from Gfk will be released this morning. Other than that, the Euro is likely to be driven by events elsewhere today.

USD

The US Dollar fell a further 0.2% on Wednesday, extending its run of declines to almost 3.5% since early January.

News out of the US continues to be dominated by Donald Trump, with economic news and even central bank announcements taking more of a backseat. The Dollar was therefore little moved by the release of the November Housing Price Index. Housing prices increased by 0.5%, slightly above the 0.3% recorded in October.

A string of economic announcements in the US this afternoon will all have potential to shift the Dollar this afternoon. The services PMI and new homes sales will both be worth looking out for.

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