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Monthly Wrap: USD – US dollar muted as global economic uncertainty curbs Fed rate path outlook

currency-newsMonthly Wrap: USD – US dollar muted as global economic uncertainty curbs Fed rate path outlook
Key Takeaways:
  • Dovish Fed weighs on USD sentiment
  • Demand for safe-haven currencies prevents dollar falling further
  • USD Monthly highs: £0.80, €0.88, AU$1.42, C$1.38, NZ$1.49
  • USD Monthly lows: £0.77, €0.87, AU$1.35 , C$1.31, NZ$1.44
USD remained volatile over the course of December, with the start of the month seeing the dollar weakened by the 90-day temporary truce agreed upon by US President Donald Trump and Chinese Premier Xi Jinping over dinner at the G20 summit in Buenos Aires.

The slackening of tensions between the US and China was short-lived, as the arrest of the chief financial officer of Chinese comms giant Huawei, Meng Wanzhou, with the threat of extradition to the US caused fresh tensions between the two countries.

With US unemployment increasing from 3.7% to 3.9% in December, and non-farm payrolls falling further-than-expected in November, the dollar has continued to slide.

However, the initial jobless claims data released mid-December showed a better-than-forecast drop, which aided the dollar.

Furthermore, annualised Gross Domestic Product (GDP) readings for the third quarter saw a lower-than-expected reading which did little to aid USD.

This week saw the Dollar fall due to a decrease in global risk sentiment as talks began between the US and China in Beijing – the first face-to-face talks between the two countries since the 90-day trade truce.

Any further positive developments between the US and China will be a likely cause of an easing of a demand for safe-haven currencies such as the dollar.

The end of January will see the Federal Reserve’s first interest rate decision of 2019, and with last week’s dovish speech by Chair of the Federal Reserve, Jerome Powell, the likelihood of a rate hike is looking diminished.

His comments rested on the back of an uncertain economic outlook, with Powell noting that the Fed was alert to any further evidence of weakness.

December US retail sales figures next week will likely cause movement in the dollar, with another decrease likely to reduce support for USD.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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