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Dollar languishes around one year low ahead of FOMC meeting

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26 July 2017

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The US Dollar continues to struggle around its lowest level in a year against its major peers yesterday with deepening political woes in the country continuing to pressure the currency ahead of tonight’s FOMC meeting.

nvestors remain wary of news on Donald Trump’s ties with Russia before last year’s election. In a series of early morning tweets, Trump blasted his alleged involvement with Russia and the recent probe aimed at his attorney general Jeff Sessions. The Dollar sold-off by around half a percent off the news, although quickly reversed its losses during afternoon trading.

Currency markets have now fully turned their attention to this evening’s monetary policy meeting of the Federal Reserve. Expectations of another interest rate hike by the Fed have been dealt a blow in the past few weeks by some relatively less hawkish comments from Chair Janet Yellen and a slightly underwhelming slowdown in US inflation. With there now real doubt among policymakers that inflation will return to its target any time soon, the Fed is unlikely to signal it is in a rush to raise rates again. Regardless, with the market still currently discounting the possibility of another hike before year end and we could see modest support for the Dollar should the Fed’s statement suggest another rate increase in 2017 remains likely.

IMF downgrades UK growth forecast

Sterling edged marginally higher against the US Dollar for the third straight session on Tuesday, hovering just above the 1.30 level despite a downward GDP revision from the IMF. The International Monetary Fund now expects Britain’s economy to grow by just 1.7% in 2017 compared to a previous forecast of 2%. With real earnings growth now negative and the political future far from certain it seems inevitable that activity will slow this year.

GDP data this morning is expected to show the UK economy barely grew for the second straight quarter in the three months to June. Preliminary data is expected to show that Britain’s economy expanded by just 0.3% in Q2 off the back of a slightly disappointing performance in the services sector, of which contributed to the bulk of the country’s overall output. Such a weak reading would be bad news for Bank of England hawks, and suggest that the central bank remains some way off hiking interest rates for the first time in a decade.

German business confidence jumps to highest level on record

Euro traders almost completely overlooked yesterday’s impressive news out of Germany which showed that moral among businesses in Europe’s largest economy is currently at its highest level on record. The business climate PMI from IFO unexpectedly jumped in July, hitting a third record high in as many months. Businesses appear seemingly unfazed by the possible side-effects stemming from the recent strong Euro, boding well for Chancellor Angela Merkel as she looks to seek a fourth term in office at the upcoming national election on 24th September.

ECB member Lautenschläger will be speaking this afternoon, although will unlikely be a big market mover. All attention will instead be on tonight’s FOMC meeting.