Market News & Insights
4 January 2018

Dollar Firmer Post FOMC

Since Tuesday, the pound has enjoyed a positive start to 2018 and consolidated those gains on Wednesday at market open, reaching highs of USD 1.3608 which was its peak since the EU Referendum in June 2016. Later yesterday, however, GBP/USD levels slid more than a cent and the pound lost ground against the majority of major currencies.

The US dollar enjoyed an upturn in fortune yesterday afternoon on the back of some promising economic data releases. The December ISM Manufacturing survey came out above forecasted levels at 59.7 whilst the New Orders Index indicated expanding business conditions with an increase of 5.4 points from its November result of 64.0. The US looks to be in fine form heading into the rest of January with gains in production and orders; a slower expansion of employment levels and increased orders within the import and export markets. Construction figures were also on the up as a staunch increase in housebuilding as well as increased expenditure on home improvements proved to be the main drivers of this.

FOMC meeting minutes were also released overnight, with a wide range of views being expressed. Some members recommended a faster schedule of rate hikes in 2018 but this seems to have been quelled somewhat by concerns around low inflation predictions. In general, most members back the idea of several rate hikes apart from two whose concerns centred around risks to financial stability. The key point here is that the two uncertain members will no longer have voting rights in the committee in 2018 and as such the market-led probability of a rate hike has risen from 56% to 67% in Q2. Today’s data releases include ADP Non-Farms Employment numbers which are forecasted to increase, as well as Unemployment Claims and Crude Oil inventories which look set to fall according to predictions in the market.

In 2017, the euro was undoubtedly the best performer across the major currencies, it continued its flying form with highs of 1.2077 on Tuesday morning – a 3-year high. The inevitable slide did begin however, with Wednesday’s trading leading to a day’s low of 1.2006, despite a brief rally in the Asian markets back to USD 1.2025. The slight drop in EUR levels came amidst strong data from Germany as labour market data showed a drop in unemployment. The number of jobless in Germany remains at its lowest since the German reunification in 1990.

Today we see PMI reports from individual countries in the Eurozone as well as an aggregate for the whole region. The euro has opened at USD 1.2025 and GBP/EUR 1.1245.