Sterling falls further to five-and-a-half-year trough versus US Dollar

Enrique Díaz-Álvarez08/Ιαν/2016Currency Updates

Investors continued to send the Pound lower on Thursday, with Sterling sinking to its weakest position against the US Dollar in five and a half years. This is based on dimming expectations that the Bank of England will hike interest rates this year.

Also, this comes after a poor run of economic data this week and continued fears surrounding Britain’s EU referendum and the damaging effects of a possible ‘Brexit’.

The US Dollar strength is also a result of the Federal Reserve’s interest rate decision in December and the anticipated gradual, quarterly interest rate hikes in the US.

UK businesses with exposure to the US Dollar should be alert. Those selling USD can now take advantage of the currency’s strength – and we expect that the Greenback will appreciate further.

The Euro rallied for the second day, ending higher against both the US Dollar and Pound, while concerns surrounding the Chinese economy continued to cause chaos in the global financial markets. Trading was halted for the day on China’s main stock market after its circuit-breaker mechanism was activated following a 7% decline in stocks, sending the Yuan even lower for the week.

Yesterday also saw another sharp decline in oil prices, which fell below $33 a barrel to a fresh 11-year low. This dragged down commodity currencies across the board, with the South African Rand and Russian Ruble both falling to fresh record lows.

Today’s trading session will be focused on the latest labour market report in the US. As always, the nonfarm payroll figure, set for release at 1:30pm GMT this afternoon, will be of high importance for the timing and pace of additional Fed rate hikes. Any figure in excess of the expected 200,000 job creations would provide solid support for the US Dollar.

Major currencies in detail:


Sterling suffered again on Thursday, with a lack of sentiment towards the currency causing it to fall by 0.8% against the Euro and 0.2% versus the US Dollar.

Economic announcements were very limited in the UK yesterday. House prices increased more than expected in the month to December, according to Halifax, rising by 1.7%. Prices were 9.5% higher than a year previous, its largest annual increase since 2006, in a positive sign of housing market strength.

Meanwhile, despite this week’s poor economic data, Chancellor George Osborne claimed that the UK ‘must be prepared’ for a first interest rate hike since 2007.

Trade balance data will be the focus of trading in the UK this morning, set for release at this morning by the Office for National Statistics.


The Euro was well supported again on Thursday, ending at around a three-session high against the US Dollar after climbing by 0.8%.

Economic data in the Eurozone was fairly mixed on Thursday, although encouraging data on the labour front provided good support for the common currency. The rate of unemployment declined for the second straight month in November, falling unexpectedly from 10.6% to 10.5%, its lowest level in the Euro-area since October 2011.

Equally as encouraging, economic sentiment in the Eurozone improved, climbing from 106.1 to 106.8 after investors had expected an unchanged reading. Retail sales, however, failed to impress, declining by 0.3% in November and further pointing to weak domestic demand within the Euro-area.

German data will be in focus for Eurozone traders this morning. Industrial production and trade balance figures could cause moderate Euro volatility.


The US Dollar index ended lower for the second straight session on Thursday, falling by 0.5%.

The last jobless claims figures for 2015 continued to point to an improvement in labour market conditions in the US economy. Claims in the week ending 1 January fell to 277,000, ensuring that last year experienced the lowest level of new unemployment benefits in 42 years.

While the Fed is no doubt keeping a close eye on developments in China, Fed member Jeffrey Lacker claimed it remains unclear whether this week’s turmoil will have any effect on the US economy.

The unemployment rate, nonfarm payroll figure and average earnings will all be worth looking out for in this afternoon’s US labour report at 1:30pm GMT.

Rest of the world

The Danish National Bank hiked interest rates by 10 basis points to -0.65% yesterday. This came in a bid to stay in line with recent policy moves by the European Central Bank and reduce pressure on the Danish Krone’s peg against the Euro.


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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.