Can Yellen save the Dollar

7 May, 2014

Tom Arnold

Yesterday saw the Pound once again push higher off the back of positive UK data. This time it was Markit Services PMI that provided the impetus. The figure came out above expectations showing a better than expected performance in the UK’s services sector, and providing further evidence that the UK economy is not only heading in the right direction, but leading the way amongst its contemporaries. The Pound tested 5 year highs against the US Dollar and push back up to the highs we saw earlier this year against the Euro.

Today sees an almost complete absence of important data due for release to the markets and as such we might expect a slightly quieter day than we have had recently. There have already been some European industrial numbers out this morning, which have failed to achieve expectations and hence provided no help to the Euro at all.

Later we have a few minor releases in the US and then the only potentially important event of the day is a speech from Federal Reserve Chair Janet Yellen at 3pm. She will be giving testimony to Congress and is expected to give indications of the US’s upcoming economic policy and plans. The incredibly weak US Dollar will be hoping for a clear indication from her that normal economic service is going to be resumed without the need for stimulus from the Fed. Recent policy has involved the cutting back on the stimulus packages, but it has been tentative and not been backed by firm policy guidance from the top, and following examples elsewhere, most notably in the UK, of the use of “forward guidance” as a tool, US Dollar enthusiasts will be hoping for something similar to help the ailing Greenback get back on track.

What this means for those of you with upcoming currency purchases is that if your starting currency is Sterling, you are looking at the best rates for most currencies for a significant time, with a strong and well supported Pound providing the back drop. However the weak Euro and weak Dollar will not last forever – both are more major players than the Pound and the first signs of significant positivity could cause a reversal of these highs very quickly – could Yellen’s speech be the first example of this?

Make sure you stay in close contact with your CI account manager to be kept well informed on what is happening in the markets and the options that are open to you. Remember if you have a need to send money overseas in the future but want to take advantage of the rates as they stand now, then a forward contract from CI could be just what you are looking for.