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Weekly roundup: US dollar weakens as rate hike odds continue to fall

currency-newsWeekly roundup: US dollar weakens as rate hike odds continue to fall
The US dollar found itself increasingly unappealing last week as hopes of another interest rate hike this year continued to slide. Domestic data was mixed and the speeches from Federal Reserve officials offered nothing to get excited about.

Market expectations of another interest rate hike from the Federal Reserve this year continued to dwindle last week. This, combined with the persistent tensions between the United States and North Korea, made the US dollar an unappealing asset.

Markets were closed on Monday for the Labor Day holiday, keeping USD demand muted. Tuesday saw US dollar bearishness persisting after Federal Reserve official Lael Brainard called for caution with regards to monetary policy. Brainard is well-known for her pessimistic views on interest rates, but her comments nonetheless prompted markets to further retreat from USD.

Data on Wednesday was mixed, but this at least slowed the pace of the US dollar’s decline somewhat. The July trade balance bettered forecasts, with the deficit widening by marginally less-than-expected. The shortfall still increased, however, which made it hard for the markets to find too many positives in the release. The ISM non-manufacturing composite index registered a solid climb from 53.9 to 55.3, although this just came short of the forecast 55.5.

A combination of strong demand for the euro and worse-than-expected unemployment data weighed on the US dollar on Thursday. The number of initial jobless claims made in the week ending September 2nd surged to 298,000; well above the forecast 245,000 and virtually at the threshold at which economists start to worry about the health of the labour market.

Federal Reserve policymakers speaking on Friday seemed slightly more upbeat than their colleagues earlier in the week, but markets found little to get excited about in speeches from William Dudley, Esther George or Patrick Harker. Hurricane Irma was just around the corner and markets were worried about the damage the storm might cause and how this could affect the economy.

The first half of this week is pretty quiet in terms of economic data, but things pick up on Thursday when August consumer price indices are released. A minor uptick in overall inflation is expected but, more crucially, core inflation growth is expected to ease back. Friday rounds off the week with advance retail sales figures and the University of Michigan consumer confidence index.
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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