US Dollar recovers after Senate passes budget, jobless claims fall to 44 year low

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20 October 2017


The Dollar rose almost half a percent against its major peers overnight after the US Senate narrowly passed its budget blueprint for the 2018 fiscal year, removing a major obstacle in Donald Trump’s bid to force through tax cuts this year.

he Republican controlled Senate passed the resolution in a tight 51-49 vote, which will now pave the way for Trump to pursue a tax-cut package without needing Democrat support. The Dollar rose to a 14 year high at the beginning of the year as investors had hoped the President’s fiscal overhaul would push up both growth and inflation, a term coined as ‘Trumpflation’.

On Thursday, another bumper set of jobless claims data provided reason to be optimistic over the state of the US economy. Jobless claims unexpectedly dropped to its lowest level in more than 44 years last week with just 222,000 Americans filing for benefits. A rebound in jobs growth following the hurricane related decline in September was cited, suggesting the overall outlook for the US labour market remains rosy despite last month’s fairly dismal nonfarm payrolls report.

Common currency brushes aside Catalonia uncertainty

The Euro surged to its strongest position in almost a week against the US Dollar on Thursday, albeit retracing almost all of its gains during Asian trading.

Investors continue to appear unruffled by the ongoing political uncertainty surrounding Catalonia’s independence bid. Spain’s government claimed on Thursday that it was to suspend Catalonia’s autonomy, imposing direct rule after the region’s leader threatened to declare independence. However, with the Catalonia impact seemingly pricing into the Euro, investor instead appeared comfortable longing the currency ahead of next week’s highly anticipated European Central Bank meeting.

Absent any significant developments out of Spain in the coming few days, the ECB meeting on Thursday undoubtedly presents the next main event risk for the Euro. Policymakers in the Eurozone are expected to announce both an extension and a reduction in the central bank’s large scale quantitative easing programme.

Sterling recovers after retail sales, NZD surges almost two percent

Sterling recovered well as trading progressed yesterday, having slipping to its lowest level in a week off the back of Thursday’s underwhelming set of retail sales data.

Yesterday’s retail sales report was very disappointing, suggesting that consumer spending may have stalled in the third quarter of the year. Sales declined by a much larger than expected 0.8% last month after investors had eyed a 0.1% decline. The unexpectedly sharp drop was fuelled by downward pressure on sales in non-food stores and reverses much of the impressive jump in August. While we think such a slowdown is unlikely to derail the Bank of England’s plans to raise interest rates for the first time in a decade early next month, it is a fairly significant blow to the more bullish members of the MPC optimistic over a rebound in consumer acidity in the second half of the year.

Meanwhile, the main mover of the day was the New Zealand Dollar which continued to edge higher during London trading yesterday after sinking by well over one percent to a four-and-a-half month low during the Asian session. This came after the left-leaning Labour Party, who obtained the second most amount of votes at last month’s inconclusive election, was able to gain support of a minor nationalist party to form a coalition government.