US Dollar retraces gains after volatile stock market moves

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7 February 2018

Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

A resurgent US Dollar briefly touched a two week high against its major counterparts on Tuesday morning, before reversing gains to end London trading essentially unchanged.

F
inancial markets remained rattled by the sharp sell-off in stock markets around the world in the first half of the week, which saw the S&P 500 index lose almost 5% of its value in just one day. While this led to a flight to safe haven currencies, as is typically the case during times of market stress, currency markets remained mostly calm. The US Dollar actually gained against almost all of its major peers, barring the Yen, during morning trading yesterday. Its retracement in the afternoon mirrored that of the Dow Jones, which ended up more than 540 points in positive territory.

The US currency was also kept under pressure following the release of a fairly damning set of trade figures which showed that the country’s trade deficit had swelled to its widest level in nine years in December. A surge in imports and a relatively smaller jump in export growth meant that the deficit rose by 5.3% in December to $53.1 billion, its highest levels since 2008.

Federal Reserve member’s Dudley, Evans and Williams will all be speaking in the US today, with investors hoping to gain a clearer picture as to pace and timing of Federal Reserve hikes this year. In the absence of any surprises, this evening’s interest rate announcement from the Reserve Bank of New Zealand could be the main event in the currency markets today. The RBNZ is expected to keep policy unchanged, although the market will be eagerly awaiting the press conference from Grant Spencer, his first as the new Governor of the central bank.

UK growth forecasts revised higher on global recovery

The Pound and Euro both ended trading yesterday pretty much where they began it. Sterling had briefly touched its lowest level since mid-January, with Monday’s underwhelming services PMI and the flight to safer currencies largely to blame. There was some fairly encouraging news from National Institute of Economic and Social Research on Tuesday, which claimed that the UK economy would grow faster than previously anticipated over the next two years. The think tank now expects the UK to grow by 1.9% in 2018 and 2019, up from the previous estimate of 1.7%, mostly thanks to an improving global economy.

Meanwhile, the common currency proved one of the more resilient currencies to the US Dollar pullback, opening trading this morning hovering around the 1.24 level. We had further news that the German economy was showing underlying strength. Factory orders in the country rose 3.8% versus a forecast of 0.7%, its highest jump in four months. With no major announcements in the Euro-area today, the single currency is likely to be driven by events elsewhere.