After 12-weeks of consecutive gains, the US dollar’s advance across a broad range of currencies ran into a bit of trouble. The relative absence of economic data and event risk provided investors with an opportunity to book profits on built-up long dollar positions. The release of the FOMC minutes fuelled that process and allowed for additional dollar losses. Nevertheless, the more medium term outlook has not changed. Geopolitical risks, such as protests in Hong Kong continued, while German data supports the view of a deeper slowdown for Europe. The IMF bi-annual global growth report also revised lower its forecast and warned that there was an increased chance for European economies to slip back into recession.

Euro

Dismal German economic data was released this week, with German industrial orders dropped over five per cent, marking its fastest pace of decline since 2009. Industrial output fell four per cent, again the biggest decline since the financial crisis. The German trade balance revealed a shrinking surplus as imports and exports fell. The data was weak enough to call into question the strength of Germany’s recovery. The data supports arguments for additional monetary policy measures, which the European Central Bank has said is prepared to deliver in order to maintain price stability. On the fiscal front, policies still seem to be in conflict. Budgets for 2015 are currently under review at the EU level, but there have been rumblings that the French need to do more to reduce spending. At the same time the French continue to want to limit structural reforms which are needed to make their economy more competitive. Without fiscal solutions in place, the prospect of more monetary action grows and with it the likelihood of more euro losses in the weeks ahead.

Sterling

The Bank of England left its monetary policy unchanged at this week’s meeting. The pound took back losses seen last week as the dollar continued to feel broad-based selling pressure. Against the euro, sterling dropped to three-week lows. Industrial and manufacturing figures confirmed what PMI surveys have been telling markets. The recent strength of the local currency coupled with weakened eurozone demand is working its way into the UK economy. The housing market also took a little hit when a RICS price survey dropped to levels not seen in 15-months. The prospects of a weaker growth outlook for the UK limited sterling’s ability to strengthen.

US dollar

The build-up of long dollar positions unraveled this week as profit taking commenced. The dollar’s decline was aided by dovish sounding minutes from the FOMC as it remained cautious on the outlook for the US economy and noted the potentially negative impact a stronger dollar might have achieving the Fed’s inflation goal. A strong dollar holds down import costs. The more cautious approach seen in the minutes triggered a rally in equity markets, but that did not translate into dollar gains.

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