05/03 – Dollar strengthens to 3 month high

GBP: Sterling not helped by equity declines

EUR: Good news slapped by Fed speech 

USD: As yields go, so does the dollar at the moment

Sterling

The pound has followed equities lower overnight despite initially touching 1.40 against the USD yesterday evening. All of this move is based on the sell-off in risk overnight following the Fed Chair’s speech.

Sterling may not be able to count on next week’s data to help it out; industrial and manufacturing production numbers in January will have been affected by Covid and Brexit issues and any inflation issues within the sectors are being looked through as transitory.

News that investors are pricing in a 25bps hike in UK interest rates by Q3 of next year could easily be seen as optimistic and any doubts may further damage sterling’s prospects in the short term.

Euro

The euro really cannot get a break at the moment; the day after Germany starts talking about reopening their economy and wider provision of Covid-19 vaccines through the European bloc, the single currency gets slapped by movements in US bond yields and the belief that the ECB will move to push their own bond yields lower.

The ECB meets next Thursday and all eyes will be on the comments on movements in debt markets.

US dollar

Dollar has moved to a three month high this morning after Fed Chair Powell’s speech yesterday in which he declined to meaningfully push back on the increase in bond yields that have gripped markets in the past month or so.

With US debt now paying more than it has in over a year, the incentive to hold dollars is a lot stronger with investors also betting that this will in turn cause the Federal Reserve to hike interest rates sooner than they are currently communicating.

Stocks’ wings were clipped as a result of this speech and while we do not see a huge sell-off in equity prices prompting a wider move into the dollar from a risk aversion point of view, some assets that have been bid up aggressively in the past – tech shares for example – may see further consolidation.

Dollar could easily push higher this afternoon as well should today’s payrolls report show that the US jobs market is recovering strongly. The number is due at 13.30 GMT.

Elsewhere

Oil prices are heading higher this morning after an OPEC meeting yesterday that kept supply cuts in position against expectations of barrels being returned to the market. In a market wherein the USD is flying higher it is tough for commodity currencies to outperform, but currencies such as NOK, CAD and RUB will show some strength against the EUR and GBP.

Market rates

Today’s interbank rates at 08:24 against sterling. Movement vs yesterday.

Euro€1.161 ↑
US dollar$1.385 ↓
Australian dollar$1.803 ↑
South African randR21.17 ↑
Japanese yen¥150.1 ↑

Have a great day and a better weekend.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.