The Dollar is ending the week on a strong note despite markets seemingly a little less confident that the Federal Reserve will hike rates twice more this year. The correlation between the Dollar and US interest rates is tentative at best at present but with many other major currencies suffering from country-specific risks and concerns, markets are seemingly turning to the Dollar, as well as the Swiss Franc and Japanese Yen “safe-havens”.
Sterling has been battered all week and GBP/USD is trading below 1.28 for the first time in nearly a year as concerns mount that the UK could end up leaving the EU next March without a deal in place. It is conceivable that the British government is upping its warnings that the UK may fail to secure a Brexit deal which would in turn be damaging to the UK economy as part of some elaborate ploy to focus all parties’ minds on what’s at stake.
But time is running for both UK and EU negotiators to reach a middle ground and markets are growing increasingly nervy. UK GDP growth doubled to 0.4% qoq in Q2, in line with consensus forecasts, but these are ultimately “old” data and UK economic growth still remains very slow (1.3% year-on-year) compared to most developed economies.
The Aussie and in particular Kiwi Dollars have also been on the back foot. Both the Reserve Bank of Australia and Reserve Bank of New Zealand left their policy rates on hold this week as expected and the policy statement from the RBA was broadly neutral. But markets may be growing impatient with an RBA which is in no rush to hike its 1.50% policy rate. The RBNZ was outright dovish in its language and forecast revisions and this clobbered an already under-pressure Kiwi Dollar.
The Euro has not been immune either and EUR/USD has fallen below 1.15 since mid-2017, with bullish Dollar sentiment rather than specific Eurozone data or events driving the cross.
