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Another day with USD in focus

Another day with USD in focus

The Dollar continues to strengthen against most currencies, supported by strong US data.  Yesterday the Federal Reserve’s Beige Book confirmed the recent upturn in US economic activity, particularly in manufacturing and employment.

Today we have US inflation data which will be yet another indication as to how much room the Fed has to reduce stimulus, i.e. taper, at its next meeting at the end of January (reducing money supply can negatively impact inflation).

In Europe, however, inflation remains subdued. Today’s final inflation print for the euro area should confirm weak core price pressures. In Spain and Italy, core inflation declined in December

Real GDP growth in Germany was a modest 0.5% in 2013, as global headwinds and still sluggish demand from other euro states impact exports.

Despite this slightly gloomy picture of the Eurozone recent UK data has not helped GBP break significantly above the 1.20 mark.

Overnight the AUD was the biggest underperformer, falling by 1.1% to its lowest level since July 2010 on the back of weak employment that raised market expectations of a rate cut in February. GBP/AUD now sits at 1.8600

Why is there always so much news about USD?

Even though you may not be buying or selling USD, the currency is a major influencer in other exchange rates. In the absence of any economic data in the country/region that a given currency originates from, it will be the markets opinion on USD that determines the exchange rate you are interested in. Put in the most simplistic way possible; on any given day the market, based on economic data, will first decide if USD is in or out of favour. This will thus determine if USD is strengthening or weakening. After this is established, other currencies will then squabble for position amongst themselves.


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