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USD boosted by US-North Korea tensions - until Friday’s inflation data

currency-newsUSD boosted by US-North Korea tensions - until Friday’s inflation data
Military tensions cranked up several notches last week between the US and North Korea. USD enjoyed a boost as markets fretted over the possibility of nuclear war, until the interest rate outlook became the primary concern again on Friday.

For much of the week the markets were focussed on one thing; the tensions between the US and North Korea.
This actually boosted the US dollar, as markets rushed to find safe places to put their money, deserting risk currencies like the Australian and New Zealand dollars.

President Donald Trump escalated things further after warning North Korea to stop threatening the United States, telling journalists that they would face ‘fire and fury’ if they did not comply. Such bombast is normal from North Korea, but Trump drew criticism from all sides for replying in kind, rather than taking the more restrained approach to such issues that the US usually adopts.

His comments were in response to suggestions that Pyongyang now has miniaturised nuclear warheads that can be fitted to its arsenal of intercontinental ballistic missiles, meaning US cities are now within range of a nuclear strike.

North Korea responded by outlining potential plans for a potential missile strike into the waters off Guam, a US island located in Micronesia.

On Friday the latest US data dragged market focus back to the interest rate outlook. Inflation data printed -0.1% lower-than-expected, with monthly CPI growth coming in at 0.1% and year-on-year growth at 1.7%. This quelled hopes of an interest rate hike in December so far that there is now actually a 2.3% chance that the Federal Open Market Committee (FOMC) will opt to cut interest rates.

There is nothing of interest on the calendar today, but tomorrow’s advanced retail sales figure is likely to impact the outlook for interest rates over the second half 2017. After declining -0.2% in June, economists expect sales to have grown 0.4% during July.

The biggest development this week for the interest rate outlook will be Wednesday’s release of the minutes from the Federal Open Market Committee’s (FOMC) July 26th meeting. Should the committee have highlighted that inflation remains concerning, the US dollar is likely to tumble further, as it doesn’t bode well that the Fed was worried about price growth even before the latest disappointing figures.

Thursday’s initial and continuing jobless claims figures aren’t likely to cause much of a stir, an evening speech from the Federal Reserve official Robert Kaplan may create some turbulence for the market if he mentions monetary policy.

Friday’s University of Michigan confidence index rounds off an important and volatile week of data.
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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