Dollar rallies for second day as calm returns to currency markets
27/Aug/2015 • Currency Updates•
The Pound hit a two week low against the Dollar yesterday following broad US Dollar strength. Sterling depreciated throughout the day to end 1.3% lower versus Greenback.
From a domestic data perspective, mortgage approvals continued its march upwards in July, soaring to a seventeen month high. The latest data from the British Bankers’ Association showed that overall mortgage approvals rose by 15% year-on-year last month to 46,000, in line with forecasts. Applications for remortgages jumped by close to thirty percent from a year previous to reach their highest level in four years, with borrowers looking to fix in mortgage rates ahead of an expected interest rate hike by the Bank of England in the not too distant future.
Meanwhile, this month’s distributives trades survey from CBI suggested conditions within the UK retail and wholesale sector was improving. The index increased unexpectedly from 21 to 24 due to steady retail sales in August and an expected pick-up in September. This growth in British retail sales was fuelled in particular by clothing stores and internet sales, and bodes well for future near term economic growth.
House price data from Nationwide is set for release before markets open in the UK this morning – the only major release in Britain in an otherwise quiet day of announcements.
A return to calm in the currency markets, and less need for the Euro as a safe-haven, caused the single currency to depreciate against the Dollar by 1% yesterday.
The Eurozone was mostly out of the spotlight in the currency markets on Wednesday, with no major economic indicator data releases. However, the European Central Bank’s chief economist did warn of heightened risks that could prevent inflation from returning to policymaker’s target.
Speaking in Mannheim, Germany, Peter Praet claimed that falling commodity prices and a slowdown in China were hindering price growth, returning to where the central bank wants it to be. However, Praet echoed words from Vice President Vitor Constancio, claiming that the Governing Body was ready to beef up its asset-buying programme if necessary.
Limited data in the Eurozone once again on Thursday means much attention will be on the US. However, revised growth figures from Spain and the latest money supply data from the European Central Bank this morning are worth following.
With markets returning to calm following the recent stock market turmoil, the Dollar continued to gain on the lessening need to buy safe-haven currencies. The US Dollar index climbed by 0.8% during the London trading session.
Federal Reserve member William Dudley yesterday gave the clearest indication yet from the central bank that a rate hike in September has become increasingly less likely after the recent turmoil in China. Dudley, one of the Fed’s top officials, admitted that the recent events in the global financial markets have made the argument for a hike next month “less compelling”. However, on the hawkish side, he claimed he still hoped the Fed would tighten monetary policy at some point this year, and all but ruled out the need for further QE in the US.
The main economic announcement in the US on Wednesday surpassed even the most optimistic of forecasts. Durable goods orders for July increased by 2%, after a slight contracting was anticipated. Excluding transportation the reading also surpassed forecasts, increasing by 0.6%. This is even more encouraging given the problems faced by US manufacturers, namely a strong US Dollar, lower oil prices and growth slowdown in China.
Today marks the annual Economic Policy Symposium in Jackson Hole, Wyoming. The event, which brings together academic experts and financial market participants, is closely watched by foreign exchange traders, and will likely touch on challenges facing the global economy, including the slowdown in emerging markets and recent financial instability. Later this afternoon, a revision of second quarter growth is expected to show the US economy expanded more than originally thought, likely higher than 3%.
REST OF THE WORLD
There was growing speculation yesterday that Hong Kong might scrap its historic peg against the US Dollar following China’s surprise move to devalue the Yuan. Meanwhile, the latest poll of analysts suggests that the Swiss economy is likely to have fallen into its first recession since 2009.