Small gains for USD Euro unsteady ahead of busy month end

15 January, 2015

Matthew Boyle

Yesterday was a fairly busy day in the market with the USD taking largely centre stage. Through the morning there were some minor releases for EUR and industrial production for the Euro zone showed an increase from a predicted -0.8% to -0.4%, however this did little to aid the currently weak single currency with little movement and buying rates remained near a 7 year high. Perhaps largely encouraged by the currently flying greenback which is benefiting from the cheapest oil prices in years, this is only encouraging EUR weakness as money is being pulled on a global scale out of the single bloc and back to the safe-haven that is the USD.

As we moved into the afternoon it was USD that took the limelight with retail sales and industrial production data released. Retail sales were predicted to contract from a previous 0.4% to -0.1%, however results actually showed a contraction to -0.9%,. As a result the market reacted and the Dollar quickly lost ground. However other US data slowed the drop for the USD as we saw the import price index improve to -2.5% from a predicted -2.9%. Another 2 hours later EIA crude oil data showed a huge increase from a predicted 0.417M to 5.389M and whilst albeit a data release of relatively minor impact the sheer size of the change coupled with the importance of current oil prices to the USD strength quickly reversed USD earlier losses and by the end of the day’s trading rates were not a million miles away from the open, only highlighting the current ongoing strength of the greenback.

During yesterday afternoon we also had BoE Governor Mark Carney speak, who indicated that despite the recent slowdown of UK inflation rates we could still expect a rise to interest rates in the next couple of years. Whilst this was not anything that would immediately impact rates it is encouraging for the pound as a rise in interest rates would encourage foreign investment, and so long term can be taken as a positive for GBP. That said any of you with upcoming EUR requirements must not rely on GBP strength to push rates up, and indeed be wary if you are waiting off for potential results later this month when the ECB meet, or for Greek Election results to push rates higher. Much of this is likely already priced in and we have in recent weeks seen rates struggle to push through the current level – the best in near 7 years. Indeed if there is a further delay to Eurozone Q.E (and remember the ECB have been speaking about this for several months with no action) we could see rates drop back down. Furthermore relying on the Greek election is a risk as no-one can of course predict the result, or indeed the impact as although should Greece leave the Euro you might assume this would weaken it, you must remember that they are one of the weakest countries making up the Bloc.

So if any of you have upcoming transfers to make speak to your Currency Index broker today for some friendly guidance, as with rates currently so strong you may like to secure now to take out any risk but also given that with rates so high the drop will be much more rapid than any potential gains.