Daily currency report

Overview

The release of the FOMC minutes caused a late rally in the US dollar. The minutes were far from the dovish tone expected and revealed that there is very little chance of seeing further quantitative easing in the States. As a result, the dollar strengthened on the bright growth outlook. Economic data due out could further support this view and continue to provide support for the US dollar. The figures expected from the euro zone could paint a totally different story compared to the States. The European Central Bank is widely expected to leave interest rates on hold, nevertheless, markets will pause during Draghi’s press conference to comments on growth and inflation. It could also be another potentially crucial day for sterling as figures released so far this week have suggested that the economy avoided a recession in the first quarter of this year, providing support for the pound.

Sterling

Fears that the UK had slipped back into recession over the course of Q1 have almost all but diminished. Not only did the UK PMI manufacturing survey blow away expectations, the PMI construction survey released yesterday saw its orders rise to 4 and a ½ year highs. The rise in the headline survey was the highest figure seen in the last 21-months and confounded expectations for a pull back in demand. This should allow the Bank of England to take a wait and see approach while the interest rate announcement is expected to remain unchanged.

US dollar

The FOMC minutes showed an upbeat outlook on growth helping ease fears of more quantitative easing. The improved economic outlook has seen the US dollar open significantly higher after investors capitalised on the positive minutes. A string of good data from factory orders to durable goods figures also contributed to the greenbacks rise.

Euro

PPI data released showed a rise in price pressures placing doubt that the European Central Bank can credibly cut interest rates in this month’s monetary policy meeting. The European powerhouse has been seen to be struggling of late and if data releases surprise to the downside more pressure could be heaped on the under-fire euro.

Japanese yen

Traders continue to change their minds in regards to the Japanese yen. This safe haven is back under pressure following the release of the FOMC minutes in the States which has encouraged greater risk appetite.

Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/

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