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18 December 2017

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 had a fairly mixed few days last week. The currency had initially slumped to its weakest position in almost a month following the Federal Reserve December meeting, despite the FOMC announcing its third interest rate hike of 2017.

he greenback did, however, claw back ground late in the week on hopes that sweeping tax cuts in the US could be passed by the end of the year. On Friday, Republican negotiators in Congress put the finishing touches on the tax overhaul that investors are hoping could boost growth in the US next year and accelerate the pace of Federal Reserve rate hikes.

In a busy week of central bank meetings, the Bank of England and European Central Bank both kept policy steady on Thursday. The ECB continued to reiterate that interest rate hikes in the Eurozone remain a long way off, while the Bank of England, for its part, was also fairly dovish, warning that growth in the UK economy could be set to slow in the final quarter.

This week should be a slightly quiet one in the FX markets as we approach the winter holidays. This morning’s Eurozone inflation numbers and Thursday’s growth figures in the US will be the main focal points in an otherwise data light week.

Major currencies in detail


Sterling received little assistance from the Bank of England’s latest monetary policy meeting, with a late recovery in the Dollar ensuring that the Pound ended the week around half a percent lower.

The meeting itself turned out to be a bit of a non-event, with the BoE mostly sticking to the script and adding very little new information. The bank’s minutes continued to stress that interest rates were likely to rise gradually, although it did warn that growth in the final quarter of the year may prove softer than in the third quarter. Overall, it seems clear that the BoE remains in no rush to hike again and any move remains unlikely until at least the second half of next year at the earliest.


The ECB also delivered very little last week, keeping its policy steady and continuing to stress that interest rate hikes in the Euro-area remain a long way off.

Despite a relatively sharp upward revision in growth forecasts, investors latched onto Draghi’s comment that a ‘very accommodative monetary policy support’ was still required in order to lift inflation. The bank also reiterated its guidance that rates will ‘remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases’. We think the prospect of stable rates until potentially as far off as 2019 should pressure the common currency lower against most of its major peers in the coming months.


As was entirely priced in by the market going into the meeting, the Federal Reserve raised rates by another 25 basis points on Wednesday, its third interest rate hike in 2017.

The central bank continued to flag the ‘strong’ labour market and growth in household and business spending, with the latest ‘dot plot’ showing that policymakers expect another three rate hikes in 2018 and two in 2019, unchanged from September. Traders instead focused on the two members of the committee that voted to keep rates steady. Given the two are renowned doves, the reaction in the greenback was somewhat unwarranted and with the markets still only pricing in two hikes in 2018, we think there is scope for an appreciation in the greenback next year.