US Dollar (USD) Exchange Rate Tanks, British Pound Gains as US Awaits Data Release
The US Dollar has seen a disappointing week by way of data releases, with the US Dollar Index falling to the lowest level since May at 80.091 and the world’s largest economy showing a 2.9% contraction in the first quarter- the biggest quarterly contraction since 2009.
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Monday published favourable Existing Home Sales and Manufacturing PMI data, but Tuesday and Wednesday saw the economic statistics flop.
With other currencies growing bullish against the weakened US Dollar, it is hoped Thursday’s releases of Jobless Claims, Personal Consumption Expenditure, Personal Income and Personal Spending figures may help to boost the bearish ‘Buck’.
The US’s biggest data disappointment this week came in the form of Wednesday’s GDP result, which saw growth tank to -2.9% from the previously estimated contraction of -1.0%. It had been predicted that the growth figure would fall to -1.8%.
Thursday has seen the Pound reclaim its $1.70 range, which was lost after the Bank of England dampened hopes of an imminent interest rate rise. Today’s BoE Financial Stability Report saw the Pound strengthen as the central bank detailed measures for coping with the UK’s overheating housing market.
Economist Andrew Goodwin commented: ‘As we get nearer to the point where rates are going to go up, it’s vitally important that we get a clearer steer. At the moment the messages are too mixed.’
The ‘Kiwi’ has seen the most gain against the bearish ‘Buck’ recently as it attained exchange rates within a single cent of its all-time record high. Bank of New Zealand trader Neil Mellor has commented: ‘The ‘Kiwi’ has been a favourite for a while. It’s fairly clear that the RBNZ have embraced the tightening cycle.’
Predictions for this afternoons US data are mainly positive. Although there is a predicted rise of 9,000 for Continuing Jobless Claims, which would push the figure to a total of 2570k— the US expects a fall of 1k for Initial Jobless Claims, bringing down the statistic to 311k.
Personal Consumption Expenditure is expected to stagnate at 0.2%, Personal Income is predicted to rise from 0.3% to 0.4% and personal spending is set to gain from -0.1% to 0.4%.
After a hard few weeks for the ‘Greenback’, favourable results are needed to boost it from the lows created by the recent Fed announcement that interest rates will be remaining low long term. The ‘Greenback’ will struggle to fend off competition from New Zealand with its 3.25 interest rates, as the US currently flounders with rock bottom 0% interest.
Currency expert for Standard Chartered Plc, Divya Devesh, has suggested: ‘Volatility’s remaining low and the market environment is remaining overall positive for carry, so the ‘Kiwi’ is pretty much the beneficiary of that. Unless the Fed changes its tone and we see Yellen getting more hawkish, the Dollar is probably going to remain weak.’
This afternoon will hopefully show some sign of improvement for the US economy, thereby allowing the ‘Buck’ to become firmer against its major currency peers.
Updated 16:00 GMT 26 June, 2014
Thursday afternoon has seen mixed results for the US economy.
Disappointingly, Continuing Jobless Claims have risen from 2559k to 2571k, despite predictions of a rise to only 2565k.
Personal Consumption Expenditure has stagnated at 0.2% MoM and has risen by 0.1% as predicted to 1.5% YoY. Personal Income has grown to 0.4% from 0.3%, however personal spending for May flopped against predictions, only rising to 0.2% instead of 0.4%.
The US has needed strong results to counter weak GDP data this week and recent Federal Reserve statements that interest rates would remain low.
Chairwoman for the Federal Reserve Janet Yellen recently announced a cut to the US stimulus package meaning the ‘Buck’ has found it hard to tread steady ground. With unemployment results such as these economists are speculating that the tapering by the Federal Reserve came far too early.
Yellen has stated: ‘My own expectation is that, as the labour market begins to tighten, we will see wage growth pick up some to the point where… nominal wages are rising more rapidly than inflation, so households are getting a real increase in their take home pay. If we were to fail to see that, frankly, I would worry about downside risk to consumer spending.’
Whether Yellen will be proved right or not remains to be seen, however until then it appears the US Dollar is facing headwinds to compete against other majors currencies.
The US Dollar is currently trading at 0.5879 against the Pound and 0.7356 against the Euro.