US Dollar rebound continues, Fed and ECB meeting minutes to be published this week

Enrique Díaz-Álvarez16/Μαΐ/2016Currency Updates

The US Dollar rebounded last week after contrasting economic data in the US and the Eurozone brought back into focus the divergence in economic performance between the two major economic regions.

Strong US retail sales for April and other positive second-tier data out of the world’s largest economy came in contrast to overall Eurozone weakness, which last week’s disappointing industrial production figures showed once again.

Crucially, Boston Federal Reserve President and FOMC voter Eric Rosengren also came out strongly in support of our thesis that there’s a huge gap between FOMC member’s expectations of interest rate hikes in the US and that being currently priced in by the market. Financial markets are pricing in less than a 5% probability of a rate increase at the Fed’s next meeting in June.

This hawkishness gave the Dollar a significant boost and, as a result, it appreciated against all of its major peers last week.

This week we expect ramped up volatility in the markets on both Wednesday evening and Thursday morning, when the Fed and the European Central Bank publish the minutes of their most recent meetings. This provides UK businesses with an opportunity to hedge their currency exposure to both currencies in order to avoid the risk of potentially adverse currency movements.

Major currencies in detail:


The Bank of England delivered a rather dramatic assessment of the impact that the referendum is having and may yet have on the UK economy, depending on the result.

The Bank’s Governor Mark Carney painted a pretty grim picture of the consequences a Brexit would have, including a sharp fall in Sterling, higher inflation and lower growth, to the point of risking recession.

These are serious warnings, and they leave little doubt that the BoE would much prefer the UK to remain in the European Union – and, importantly, these views were clearly supported by all nine monetary policy committee members.

We’ll have a data-packed week in the UK this week, with inflation data out on Tuesday, followed by the March labour report on Wednesday. However, in the run-up to the EU referendum on 23 June polls on Brexit will be by far the most important driving factor for Sterling.


The Euro struggled last week after two disappointing reports. Both the March industrial production data and first-quarter GDP undershot expectations, with growth revised downwards to 0.5% from its initial 0.6% estimate.

While the ECB minutes from the April meeting, to be published on Wednesday, will not reflect the latest economic data, international businesses will be interested to see how the Governing Council reacted to still modest growth, with downward pressure on inflation continuing unabated.

Also key will be any comments on the possibility of a Brexit and what, if any, reaction the Council would have to such an event.


The surprising strength of the US retail sales report for April should go some way towards allaying worries about a faltering economy.

The news added to positive sentiment from the JOLTS job openings report that showed a large jump in unfilled positions.

Also former dove Rosengren stated that the likelihood of future hikes is ‘higher than is currently priced into financial markets’. This is the clearest statement yet that Fed rates are going to increase faster than the market is currently pricing in.

The US Dollar celebrated by rising against almost every major currency in the world. We now await the Fed minutes from the April meeting for confirmation that the Fed is indeed more optimistic than the market thinks about the prospects for the US economy.


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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.