A generally stronger US dollar notched one-week highs, a reflection of the tug of war over US rate hike expectations showing momentum building for the side pulling for a sooner move by the Federal Reserve. The dollar was dealt a setback last week after the weakest job growth in more than a year suggested the Fed would hold off on a rate hike until later in the year. However, the door still appears ajar to a mid-year rate hike following the release of minutes from the central bank’s last meeting. Moreover, comments this week from top voting members of the Fed threw their weight behind the case for a US rate hike as early as June, buoying the greenback. A bigger-than-expected trade gap from Britain weighed on sterling which fell to one-week lows. Expectations that Greece would fulfil an obligation to pay a huge instalment loan to the IMF helped slow the euro’s descent. Firmer commodity and energy prices supported the Aussie and Canadian dollars.
Euro
The euro fell to one-week lows below against the dollar, a descent that was partially slowed by recovery-supportive data from Germany and word from Greece that it would make good on an obligation to repay the IMF around €450 million for its rescue loans. The euro is highly vulnerable to any swings in market sentiment in favour of an earlier rate hike by the Fed which underscores the deep divergence in monetary policy between the eurozone and US.
Sterling
The pound had been buoyed this week by M&A news related to Shell’s deal to buy UK rival BG Group for $70 billion. But Britain’s biggest trade deficit in seven months had the pound back under pressure as it underscored the vulnerable shape of the UK economy. Britain logged a £10.34 billion trade gap in February, which blew past forecasts of a £9 billion shortfall. As expected, the Bank of England held its key rate unchanged at a record low of 0.50 per cent. The next critical event on Britain’s radar is the April 14 release of highly important inflation data that’s at risk of falling below zero. A sub-zero print, coupled with election uncertainty, would run the risk of dropping sterling to fresh multi-year lows.
US dollar
Better-than-expected news on America’s job market kept the door cracked to a mid-year rate hike and buoyed the greenback. In a sign the US economy was getting back on track, jobless claims rose by a smaller- than-expected amount.