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03 Feb 2015

Dollar weakens as investors lock in profits

United States Dollar: The dollar was sold off yesterday and gave up quite a lot of its gains from the previous few weeks. There was no particular fundamental catalyst for the move. Moreover, a few technical levels were tripped in EUR/USD which sparked a splurge of short covering. Investors have sold EUR/USD heavily since – and even before – the ECB’s QE announcement and the Greek elections and so yesterday provided a good opportunity to take profit on some of these short positions. GBP/USD shadowed the pair higher and recovered off of 1.4995 to trade to a high of 1.5187. It has held firm overnight and opens this morning at 1.5155. UK Construction PMI supported the move higher in cable, showing the Markit index rose to 59.1 in January vs. expectations for 56.9, indicating that output and new business growth in the construction industry rebounded from December’s lows. UK Services PMI is due this morning and another positive reading may see GBP/USD push on towards the 1.52 big figure. US ADP employment numbers and ISM Non-Manufacturing PMI are due this afternoon and so investors may be reluctant to bid GBP/USD too high even if the UK number is good as markets await these two key sets of economic data.

We expect a range today in the GBP/USD rate of 1.5090 to 1.5220

Euro: Dollar weakness was the overriding theme in FX yesterday; especially so once New York came online. EUR/USD started the day at 1.1310 and eventually traded to a high of 1.1531, close to the pre-ECB QE announcement. It has come off a little in Asia and opens this morning at 1.1445. Meanwhile, Greece remains in the headlines as its new heads of government begin a tour of Europe, meeting finance leaders and prime ministers along the way. Yesterday Greek PM Tsipras was in Italy meeting Italian PM Renzi. Greece’s finance minister Yani Varoufakis said yesterday that threats by the Eurozone to cut its funding of Greek banks were “perfectly illegitimate” and went on to say that “they are trying to asphyxiate us with arbitrary deadlines”. The euro has firmed up against the pound too over the last 12-24 hours and GBP/EUR opens in London at 1.3230.

We expect a range today in the GBP/EUR rate of 1.3170 to 1.3300

Aussie and Kiwi Dollars: AUD/USD and NZD/USD have recovered since the surprise RBA rate cut yesterday, supported in large part by the broad USD weakness. Stronger than expected NZ employment change data was also behind the move, showing that Q4 employment change increased 1.2% vs. expectations for +0.8%. RBNZ Governor Graeme Wheeler was also speaking last night and reaffirmed that central bank’s stance that keeping rates on hold for now, rather than considering a cut, was the more prudent approach, citing sharp house price rises in Auckland and Christchurch as a major concern. He also talked about the value of the currency and it was no surprise to hear him say that the NZD was overvalued. Whole milk powder prices also rallied overnight, another reason for investors to bid the ‘bird’ higher. NZD/USD opens in London at .7405, this after starting the day yesterday at .7175. AUD/USD has recovered to pre-RBA rate cut levels and trades at .7882 currently. Australian retail sales will be eyed closely later tonight by local traders.

We expect a range today in the GBP/AUD rate of 1.9325 to 1.9550

We expect a range today in the GBP/NZD rate of 2.0420 to 2.0610

Data Releases

AUD: HIA New Home Sales m/m, Retail Sales m/m

EUR: Spanish Services PMI, Italian Services PMI, Italian Services PMI, Retail Sales m/m

GBP: Services PMI

NZD: No data

USD: ADP Non-Farm Employment Change, Final Services PMI, ISM Non-Manufacturing PMI, Crude Oil Inventories

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