Dollar sell-off continues as Sterling, Euro race to fresh multi-year highs

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24 January 2018

thomasdodds

The seemingly relentless sell-off in the US Dollar continued for another day on Tuesday, with the greenback slipping to a fresh three year low against its trade-weighted basket of currencies.

A
relatively strong set of consumer and business confidence data out of the Eurozone yesterday was enough to send the common currency temporarily back above the 1.23 mark, around its strongest position since December 2014. The monthly economic sentiment measure for ZEW jumped to an eight month high 20.4 in Germany, suggesting that businesses in Europe’s largest country shared an optimistic appraisal of economic conditions at the beginning of the year.

Likewise, there was a sharp bounce in consumer confidence in the Euro-area this month which soared to a seventeen year high 1.3 in January. With individuals and businesses alike in a buoyant mood entering into the New Year, signs are good for a continuation of the solid growth we saw in 2017 continuing into 2018.

Attention now turns to this morning’s PMI data from Markit, seen as one of the main indicators of growth in the Eurozone. Aside from that, Thursday’s European Central Bank meeting holds the key to the Euro this week. Meanwhile, following an uncharacteristically quiet couple of days in the US economy, activity across the pond should begin to pick up pace on Wednesday leading into a busier second half of the week. This afternoon’s housing and PMI data should receive some attention from investors.

Pound surges above 1.41 for first time since Brexit vote

The Pound rallied sharply yesterday and then again this morning, briefly surging above the 1.41 level versus the Dollar after a solid labour report to its highest level since the EU referendum.

Sterling has now rallied by a remarkable 4.5% against the greenback since the turn of the year as investors continue to take on the belief that Britain will secure a more favourable Brexit deal than first feared, something that we highlighted a number of months ago. With little to no news to go off from official negotiations so far in 2018, currency traders have instead focused on the relatively positive comments out of Europe that have suggested EU members remain open to maintaining as much access to UK trade as possible.

This morning’s labour report added to the optimism. The unemployment rate remained unchanged, although there was a welcome positive surprise in wage growth. Earnings growth excluding bonuses rose to a better-than-expected 2.4% after investors had eyed a reading of 2.3%.