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Dollar claws back ground after sharp Fed induced sell-off

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28 July 2017

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 bounced back from the doldrums during London trading yesterday, having suffered from a violent sell-off following the release of the Federal Reserve’s July monetary policy statement on Wednesday evening.

he greenback had fallen by almost 1% to as low as the 1.177 level against the Euro after the Fed indicated that inflation dynamics in the US had weakened since the previous meeting in June. However, the view that this sharp move was an overreaction was seemingly vindicated during London trading on Thursday. The currency quickly retraced the vast majority of its losses versus both the Euro and Sterling with no other apparent catalyst for the move.

US Durable goods orders did provide some modest support for the Dollar. Orders for long life goods surged by a greater-than-expected 6.5% in June in an encouraging sign that activity in the world’s largest economy may be set to pick up pace following a disappointing first half of the year. This was the first increase in the measure since March and the largest increase in activity since mid-2014. Preliminary GDP numbers for the second quarter will round off a fairly hectic week in the US this afternoon. The economy is forecast to have expanded by 2.6% in the three months to June, a marked pickup from the 1.4% recorded in the first quarter.

Swiss Franc sinks to lowest level since cap removal

It’s been a particularly volatile few days for the safe haven Swiss Franc this week. The currency was just about the worst performing currency in the world on Thursday, slumping to its lowest level against the common currency since the removal of its Euro cap back in January 2015 as investors bet the Swiss National Bank (SNB) would keep its monetary policy accommodative. Earlier this week Chairman of the SNB Thomas Jordan again reiterated that the Franc was overvalued and that the central bank would continue to intervene, if necessary. This comes in sharp contrast to a raft of major central banks around the world, including the European Central Bank, that are beginning to signal higher interest rates and less policy accommodation may be coming.

Today looks set to be a mostly quiet day in Europe as far as economic data releases are concerned. German inflation numbers this afternoon may give us a decent indication as to the strength of the Euro-area number and could shift the common currency today.

Sterling retraces gains as focus shifts to Bank of England meeting

Sterling retraced its gains against the US Dollar in a similar fashion to the Euro on Thursday, with investors seemingly backtracking on their short USD bets.

News was scarce out of the UK yesterday. The monthly industrial trends survey jumped to an impressive 22% in July, its highest level in three months. Meanwhile, the Bank of England announced former Treasury economist David Ramsden as the new deputy governor of the BoE’s monetary policy committee, effective 4th September. With no major releases out of the UK today, traders will shift their attention to next week’s Bank of England meeting. As we mentioned earlier in the week, the key will be to see if any other MPC members join Ian McCafferty and Michael Saunders in voting for an immediate interest rate increase.