US Dollar wins Wednesday’s data battle

18 December, 2014

Rob Bastin

Wednesday was a particularly busy day for economic data as the releases for all major currencies come thick and fast ahead of the xmas break. The day began with a host of key announcements for the UK that provided mixed results and therefore little movement on exchange rates. The Bank of England minutes were unchanged as expected with 2 members of the MPC still voting for a rate hike. The focus was however more on the unemployment figures which on one hand saw the headline rate remain at 6% when analysts were forecasting a drop to 5.9%, but on a more positive note the average earnings figures were again up from previous months and exceeding expectation with growth results of 1.6% excluding bonus and 1.4% including. For much of the UK this will be a pleasing result when considering Tuesday’s low inflation figure of 1.2% as it now means that for many people income is starting to rise quicker than the cost of goods and fuel. It must however be considered that the lower inflation figure is largely due to the drop in price of petrol which is now over 10% cheaper than a year ago and expected to drop the same again in early 2015.

Next up was Euro-zone inflation which met expectation exactly at 0.7% on the year and again the markets were unmoved by this announcement. With so many other big releases still to come traders were reluctant to commit until all data had been announced. This leads onto the afternoon trading when the USD came into focus following suit with November’s inflations figures. This time figures came in slightly under consensus at 1.3% on the year against down from 1.7% the month before. Such is the unpredictability of the markets the US Dollar actually rallied and strengthened against the pound and Euro during afternoon trading despite these weaker figures, perhaps as traders speculated towards more positive announcements for the FED interest rate decision announced at 7pm last night.

The Federal Reserve confirmed that interest rates will remain at the record low of 0.25% and the accompanying statement said that the bank can be “patient in beginning to normalize the stance of monetary policy” initially creating much indecision within Dollar markets. This is however a change of language from previous statements where “patient” has replaced “considerable time”. Janet Yellen’s press conference had a positive tone with upbeat forecasts for the labour market and for recovery inflation levels. Markets currently expect interest rates to raise as early as Q2 of 2015 and the Dollar rallied to new year highs against the pound and Euro late last night.

Wednesday’s data was rounded off late last night with the latest GDP growth figures for New Zealand which were forecast to drop from 3.9% to 3.3% with actual results coming in just shy at 3.2%. Elsewhere the Swiss National Bank cut interest rates to -0.25% for large deposit accounts of more than 10m Swiss Francs. This is an attempt to lower the value of the Swiss Franc and it did indeed lose around 1% of its value following this decision, making money transfers to Switzerland much cheaper.

Today the busy week continues with the main focus of UK Retail Sales this morning at 9:30am. Expectations are for a small increase from 4.3% last month to 4.4% however it will likely be differential to this figures that dictates sterling movements for the next 24 hours. With this being the last major announcement for the UK in December then any opportunities presented in the 24 hours should be acted on with the likelihood that rates will be very flat over he xmas and bank holiday period.

To discuss these data releases in more detail then contact your broker today who will help you maximise your transfer.