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US dollar rallies on global recession fears

currency-newsUS dollar rallies on global recession fears
The US dollar firmed on Monday as weak Chinese data took its toll on market sentiment.

Meanwhile, trade in Sterling is mostly rangebound this morning, with GBP/EUR flat at €1.1856 and GBP/USD subdued at $1.2029. GBP/CAD is muted at C$1.5540, while GBP/AUD and GBP/NZD hold steady at AU$1.7170 and NZ$1.8986, respectively.

Looking ahead, will the release of some stronger-than-expected UK wage growth figures offer some support to Sterling today?

What’s been happening?

The US dollar got off to a solid start this week, with skittish investors favouring the safe-haven currency after some underwhelming Chinese data revived global recession fears and soured market risk appetite.

However the ‘greenback’ relinquished a small portion of these gains later in the session after the latest Empire State manufacturing index plummeted to -31.3 in August, the index’s worst release since May 2020.

The euro’s strong negative correlation with the US dollar, in addition to concerns over the Eurozone’s economic outlook dragged on EUR exchange rates on Monday. A Bloomberg survey published at the start of the week suggested the chances of the Eurozone slipping into a recession is now more likely than not.

Meanwhile, the pound trended broadly higher yesterday, although there was no clear catalyst for the move, particularly ahead of some high-impact UK data releases over the next couple of days.

What’s coming up?

Kicking off today’s session was the publication of the UK’s latest jobs report.

June’s report revealed the UK’s unemployment rate held at 3.8%, but GBP investors were primarily focused on the accompanying average earnings release.

This reported a stronger-than-expected acceleration of wage growth at the end of the second quarter, which could bolster the odds off another 50bps rate hike from the Bank of England (BoE) next month.

For EUR investors the focus will be on Germany’s latest ZEW economic sentiment index. Will another deterioration in the economic outlook for the Eurozone’s largest economy weaken the euro this morning?

Later this afternoon the release of the latest US industrial production figures could provide another boost for the US dollar as economists forecast factory output will have rebounded last month.
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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