USD dominates market as sentiment outweighs data

Yesterday was a strange day on the market with sentiment overriding data. In the morning the UK headline inflation data came in as expected, and whilst PPI stats came in under expectation it was the inflation number that would be the cause of any major movements. As such the result caused little stir and the focus quickly shifted to Europe for German ZEW economic sentiment data and Eurozone trade balance and employment change. German Economic sentiment showed a decline to 12.1 from a predicted 18.4 and consequently the Euro began to lose ground against both GBP and USD. This also allowed the USD to strengthen against GBP due to the see-saw effect we are seeing recently having an increasing impact.

Interestingly despite poor US ecostats in the afternoon – poorer than expected retail sales, and production and manufacturing index data- the USD advance did not halt. Partly as a result of the poor Eurozone data, aiding the Dollar to strengthen but also amidst speculation of a potential interest rate hike by the FED on the 17th. The suggestion is that a hike could potentially happen this month, if not it could be pushed back to next year. “The worst thing that they can do would be a ‘hawkish hold’. That is, if they don’t do anything, while saying that conditions are improving. That would put us back to square one, and markets would remain very volatile,” said Loan Smith, director at KCG Europe. As such despite the data it would seem that sentiment is driving rates currently with the US benefitting from its safe-haven status and the allure that an interest rate hike provides for investors.

Today will be an exciting watch as we see the UK and Europe dominate the mornings releases with unemployment and further inflation data respectively. In the afternoon focus shifts across the pond to the US who get the opportunity to bite back with inflation data of their own. Don’t be surprised however if these releases have little impact with sentiment currently riding so high, but certainly any Euro weakness could see the USD make further gains. Elsewhere in the world early this morning the Bank of Japan held interest rates at 0.1% whilst the minutes of the Royal Bank of Australia showed growth as being slightly below average currently although interestingly this did see AUD to strengthen slightly against the major pairings.

So with increasing amounts of volatility in the market and the USD having such an impact on exchange rates across the board (particularly EUR) stay in close contact with your Currency Index account manager if you have any upcoming transfers to make. Currency index can help you stay well informed and well ahead of the market.