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US Dollar Muted due to High Fed Hike Odds, Pound Flounders on Contracting Production

Published: 10 Mar at 12 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, Germany,

Pound Sterling
Despite the UK visible trade balance narrowing from -10.9 billion to -10.8 billion the mood towards the Pound did not improve on Friday. Sterling instead weakened in response to fresh contractions in construction and manufacturing output, which together offered further evidence that the economy is in less-than-robust health. While the service sector remains the main domestic growth engine this disappointment was still enough to prompt GBP exchange rates to trend lower. As the Bank of England (BoE) is not expected to take a less cautious view on monetary policy at its March policy meeting the Pound could remain out of favour in the near future.

After European Central Bank (ECB) President Mario Draghi took a more hawkish line than investors were expecting following the March policy meeting the Euro trended higher across the board. While it is still considered unlikely that the ECB will begin to taper its quantitative easing program for some months to come investors were nevertheless encouraged to pile back into the single currency. An unexpectedly sharp narrowing in the German trade surplus was not enough to knock back the Euro ahead of the weekend.

US Dollar
Ahead of February’s non-farm payrolls report the appeal of the US Dollar faltered, with a strong showing having been priced into the currency earlier. A solid showing from the latest labour market data would be seen to all but seal the case for the Federal Reserve to raise interest rates next week. However, with markets already positioned for the Fed to hike multiple times over the course of the year there is little room for the ‘Greenback’ to push higher. However, if the wage and jobs figures surprise significantly to the upside then USD exchange rates could return to a stronger footing this afternoon.

Australian Dollar
The latest Australian home loans figure bettered expectations, helping to boost the ‘Aussie’ as risk appetite recovered somewhat. Lending was found to have risen 0.5% at the start of the year, as opposed to the -1.0% contraction that investors had anticipated. This offered some encouragement in the state of the domestic housing market, also suggesting that consumers remained relatively confident. Even so, with the Fed looking poised to raise interest rates the commodity-correlated Australian Dollar is likely to struggle to hold onto its gains for long.

New Zealand Dollar
Credit card spending was found to have contracted sharply on the month in February, pointing towards a weaker level of consumer confidence. However, this did not prevent the New Zealand Dollar from recovering ground on Friday morning. A general uptick in risk appetite buoyed the ‘Kiwi’, although the afternoon’s US data could lead to a rapid reversal of the day’s gains.

Canadian Dollar
Demand for the Canadian Dollar remained generally muted ahead of the Canadian labour market figures, still hampered by the deterioration in the oil price. Although forecasts point towards a modest increase in employment this is unlikely to encourage particular confidence in the ‘Loonie’. If the figure proves stronger than expected, though, the Canadian Dollar could return to a more bullish footing, even if signs continue to point towards an imminent Fed rate hike.

As of Friday, 10th March 2017, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1398, GBP USD exchange rate was 1.2166, GBP AUD exchange rate was 1.6129, GBP NZD exchange rate was 1.7578, and GBP CAD exchange rate was 1.639.
Laura Parsons About Author: (360 Posts)Laura works in the financial sector as a currency analyst, studying the latest global economic developments and assessing their impact on the foreign exchange market. Laura uses her currency knowledge to write articles focussing on market movements and trends for several independent financial websites.

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