Dollar rally takes a breather ahead of US GDP announcement

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22 December 2016

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 retreated from its 14 year high against its trade-weighted basket of currencies on Wednesday, with the currency taking a breather from its recent rally that has seen the greenback appreciate almost 5% since the beginning of November.

This allowed the Euro to increase back above the 1.04 level against the US Dollar, with the single currency buoyed by a slightly better-than-expected set of consumer confidence data. The Euro looks certain to end the year considerably lower than when it began following ECB’s Mario Draghi’s surprisingly dovish monetary policy statement at the beginning of the month.

Meanwhile, Sterling traded with a tight band and was little moved against both the US Dollar and the Euro. Investors in the UK remain fixated on Brexit developments, and with no significant news to report on that front, the Pound traded on external announcements and nothing else.

Sweden’s Riksbank instead dominated trading yesterday. The central bank kept its main interest rate unchanged at -0.5%, although again extended its quantitative easing programme in a split decision. The division among the six member board cast doubt over the central bank’s commitment to its ultra-loose monetary policy stance, sending the Krona surging by the most in six months against the Euro.

Trading today will be dominated by announcements out of the US, namely revised third quarter GDP and durable goods orders data.

Major currencies in detail

GBP

Sterling traded within a very narrow band against its major peers, with a lack of any major economic or political announcements causing the currency to end unchanged against the US Dollar.

Government borrowing fell in November, according to data released yesterday. Public sector borrowing fell from £13.2 billion in November 2015 to £12.6 billion last month, albeit less than expected. These numbers suggest the government is broadly in line with its projection to borrow £68 billion over the full financial year with increased spending made up by rising income tax receipts and VAT.

With no economic data out of the UK today, investors will look to Friday’s revised third quarter GDP numbers. Sterling continues to be driven mainly by political factors.

EUR

The Euro rose 0.2% against the US Dollar on Wednesday, rebounding off its 14 year low reached on Tuesday.

Consumer confidence data in the Eurozone came in better-than-expected on Wednesday. The index increased to -5.1 from -6.1, better than the -6.0 consensus. Confidence in the Euro-area remains surprisingly resilient despite the political uncertainty relating to the Brexit vote, Donald Trump’s election and a host of European elections set to take place in 2017.

The ECB’s economic bulletin will be the only release of any significance today.

USD

The US Dollar’s rally came to a temporary end yesterday, with the greenback ending 0.1% lower for the day.

Housing data out of the US continued to point to an improvement in the world’s largest economy at the end of the year, reinforcing the Fed’s decision to hike interest rates for the first time since December 2015 last week. Existing home sales rose 0.7% in the month to November, increasing to 5.61 million from 5.57 million.

GDP data and durable goods orders will both be released today., Hi, I am a new blog post, you can change me, or even delete me!, it is up to you! 😉