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Eyes On US Dollar As Unemployment Data Falls Below Consensus

22 October 2015

Many economists forecast steep inflationary growth in the UK over the coming months with the effects from weak commodity prices and falling university fees tailing off. As a result, some analysts are going so far as to predict that the Bank of England (BoE) could increase the benchmark interest rate ahead of the Federal Reserve. This has seen the Pound edge higher versus its major peers on Thursday morning. British Retail Sales data, due for publication later on Thursday, has the potential to provoke volatility for the Pound. Should the data meet with or exceed expectations the British asset will likely rally given that sales growth leads to higher consumer prices.

Euro (EUR)

In the run up to the European Central Bank (ECB) interest rate decision on Thursday afternoon, the single currency edged lower across the board. This is likely due to traders profit taking amid speculation that President Mario Draghi will attempt to talk down the Euro. Most economists agree that the ECB will hold off from expanding quantitative easing at this juncture, but the recent Euro surge against the US Dollar will be a source of concern to policymakers.

US Dollar (USD)

With tepid domestic data of late, amplified fears regarding China’s economic slowdown and an absence of inflationary pressure; some economists fear that the Federal Reserve will have to delay a benchmark interest rate hike into 2016. Many are now considering the possibility that the BoE will overtake the Fed when it comes to tightening policy. The US asset has seen a fractional boost on Thursday morning, however, thanks to the Euro downtrend. Should Draghi make a dovish speech following the ECB interest rate decision, the US dollar will likely surge thanks to negative correlation.

Australian Dollar (AUD)

Although the Shanghai Composite Index ended the Asian session close to 1.5% up (recovering some of the losses seen yesterday) the Australian Dollar softened versus many of its peers. The depreciation can be linked to iron ore futures which dropped considerably in the face of oversupply and flaking demand from the world’s second-largest economy. Also weighing on demand for the antipodean currency was a drop in the third-quarter NAB Business Confidence survey from 4 to 0.

New Zealand Dollar (NZD)

Although the steep drop in dairy prices has caused the New Zealand Dollar to soften of late, the ‘Kiwi’ (NZD) strengthened on Thursday. The appreciation is partly the result of improving Chinese stock prices, but also in response to speculation that the Federal Reserve will be slow to raise the benchmark interest rate.

Canadian Dollar (CAD)

The Canadian Dollar has recovered from political uncertainty but is still holding a generally weak position with crude prices resiliently trending in the region of $45 a barrel. However, the Bank of Canada (BOC) avoided loosening monetary policy yesterday which has aided a sluggish ‘Loonie’ (CAD) appreciation.

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