Back on the 01st August I wrote the following on our Blog; “If you remember what I wrote a few weeks ago, I kept going on about how we felt the USD was due a spot in the limelight. OK I raise my hands and admit I got the timing a little wrong but at least the thought and view was there. I remain confident that the USD will continue to drive higher (vs the majors) given the bounce we have seen recently in economic numbers. We knew after FED Gov. Yellens’ recent comments that they were looking very seriously about the timing of the next rate hike. All in all these numbers just add fuel to the fire and reinforce our view that the hikes (incl the BOE) will happen sooner rather than later”.
And so here we are 2.5 weeks later and the USD has now broken 1.3300 (EUR/USD), 103.25 (USD/JPY) and flirting with the 1.6600 (1.6610) handle in GBP/USD. While CPI in the US came in as expected, housing starts registered impressive gains which gave traders a reason to buy the USD and then some!! Are the markets gearing for a hawkish tone in the FOMC Meeting Minutes and are they expecting the usually dovish Gov. Yellen to express a hawkish tone in Jackson Hole (Friday)? What ever the reason, it seems the market sees the USD as the place to be right now.
GBP/USD is showing real signs of stress. From the highs of 1.7190 seen late July to 1.6610 the GBP has fallen like a stone after various economic indicators point to a delay in raising rates. That is somewhat strange in my opinion given the state of the UK economy in general and how it is faring vs similar economies in Europe and State side. While I agree the numbers have been disappointing I do not feel the move to such an extent has been warranted. This can only mean the USD is playing a bigger role in peoples perceptions of the GBP. Reading different economic commentary you can see there is still a division amongst Economists with some still sticking to rate hikes later in 2014 and others pushing it back into Q1-2 2015. However as I have previously stated, with the UK elections in May 2015 any rate decisions around that time are generally a no-no, which tells me it HAS to come either much earlier or after the elections.
Disappointing German PPI numbers have just added fuel to the fire again reinforcing what we know already, severe slow down in Europe. This is giving the USD further lift and is likely to fuel the next leg of the USD’s rally towards 1.3000 and beyond. I have commented many times previously that any recovery globally is dependent on a recovery in the US. I have noted previously that the EUR/USD exchange rate or more importantly the strength of the EUR vs the USD has been pain in the side of the ECB. To make European goods more attractive one has to “weaken” the currency. This is what we are seeing now and should have an overall positive effect on local manufacturing.
EUR/GBP has certainly had a bumpy ride. Trading up to 0.8034 (1.2447) yesterday before recovering after US housing numbers to published. The currency is back to 0.8000 (1.2500) and while all fingers point to a recovery of the GBP vs the EUR, it is nevertheless likely to encounter a few blips on the way. GBP is holding onto the 1.6600 handle as I write this which in turn is giving a lift to GBP/EUR ahead of the BOE minutes which are about to be publish (9.30am Local time). It will be interesting to see what the votes were at the last BoE MPC meeting back on the 7th August.
Wish you a good day ahead