Hawkish Federal Reserve comments drive US Dollar higher

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9 November 2018

thomasdodds

The US Dollar leapt higher against all of its major peers on Thursday evening after the Federal Reserve strongly hinted that it was ready to hike interest rates again in December.

L
ast night’s Fed statement was much more hawkish than the vast majority of the market anticipated. As expected, interest rates were left unchanged, although the central bank continued to talk up the strength of the world’s largest economy that would warrant ‘further gradual increases’ in its main interest rate. The bank’s statement claimed that the economy “has been rising at a strong rate”, noting that there were solid jobs gains, falling unemployment and strongly growing household spending.

We think that the upbeat tone of the bank’s statement yesterday solidifies our view that the Fed will hike interest rates again in December, its fourth rate increase in 2018. The market is now seemingly firmly on board with this view, with currency traders sending the EUR/USD rate fairly sharply lower off the back of the release to its strongest position in over a week.

UK economy grows at fastest pace in almost two years

Sterling trended lower against the US Dollar for the second straight day on Friday morning, driven lower by broad greenback strength following yesterday’s hawkish Fed statement.

This morning’s preliminary UK GDP figures came in bang in line with expectations and, in the end, had little impact on the currency markets. The UK economy grew by a fairly healthy 0.6% in the third quarter of the year, its fastest quarterly pace in nearly two years. Britain was once again reliant on domestic consumption to fuel its expansion, with the jump in quarterly activity largely due to a stellar month of July, in which the economy was boosted by warm weather and England’s strong showing in the Football World Cup.

With no surprises in this morning’s GDP numbers, Brexit remains the key today. It will be interesting to see whether recent optimism over a possible deal helps the Pound reverse some of yesterday evening’s losses during the course of trading today.

Draghi talks up gradually increasing Eurozone wages

Some relatively upbeat comments from President of the ECB Mario Draghi were not enough to support the Euro yesterday afternoon. Draghi claimed that wages in the Euro-area were gradually going up ‘more and more because of permanent effects’. Aside from that, economic announcements have been relatively light on the ground in the Eurozone. A speech from ECB member Coeure this morning marks a particularly quiet end to the week in the currency bloc.