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USD weakens as odds of December rate hike worsen

currency-newsUSD weakens as odds of December rate hike worsen
The US dollar spent much of last week on sluggish form ahead of Friday’s key speech from Federal Reserve Chair Janet Yellen. Odds of an interest rate hike in December remained uninspiring, weighing on USD.

With Federal Reserve Chair Janet Yellen due to speak before the weekend, markets spent most of the week on uneasy form. The chief policymaker had the opportunity to push odds of another hike this year significantly higher or lower, so there was little appetite to buy USD before markets found out which way it was likely to move.

Data continued to be largely uninspiring, with Wednesday’s Markit manufacturing PMI slowing from 53.3 to 52.5 – a particular blow for US President Donald Trump considering the loss of manufacturing jobs has been the focus of much of his ire during his election campaign. New home sales figures also disappointed, tumbled -9.4% instead of growth stagnating as forecast.

Also on Wednesday, Federal Reserve official Robert Kaplan suggested that the US needed immigration to fill skills gaps, as well as saying that maintaining strong trade relationships was vital to achieve breakout economic growth. These seemingly clash with the policy direction taken by Trump’s administration, so the US dollar was unsurprisingly left soft in the wake of Kaplan’s comments.

Friday was a gloomy day for the US dollar, with the afternoon durable goods orders figures for July showing a worse-than-forecast drop of -6.8% on the month. Things got worse for USD after Janet Yellen gave her speech at the Fed’s Jackson Hole symposium, as she avoided the topic of monetary policy entirely, instead discussing banking regulations.

Market odds of another rate hike in December tumbled, with the chances of a change to borrowing costs in the final meeting of 2017 now trending around 66.6%.

USD is softening today as military tensions with North Korea seem likely to reignite after the North fired a missile over Japanese airspace last night. Markets are additionally worried by the extent of the damage caused to Texas by Storm Harvey.

There’s plenty of high-tier economic data on the calendar this week to boost or cut odds of another interest rate hike this year. Tomorrow sees the release of consumer confidence figures for August, which are predicted to edge lower, while Wednesday holds positively forecast GDP data.

Personal consumption expenditure figures are due on Thursday, and then it’s time for the massively important non-farm payrolls data on Friday.
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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