The dollar continues its upward progression and employment data confirms the FED rate hike

EBURY, WEEKLY CURRENCY PANORAMA

In his weekly analysis of the currency market, Ebury highlights that the dollar ended 1,5% above the rest of the main currencies, showing a weakening of emerging market currencies.

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“We are seeing a greater differential of the dollar with respect to the most vulnerable currencies, such as the Brazilian real or the Turkish lira,” assures Ebury, who sees a path for the upward trend of the US currency.

 

The company specializing in foreign exchange transactions considers that the growth of the labor market in the United States and the modest increase in wages make it evident that “maintaining low interest rates in the United States is not appropriate.” As a result, “the interest rate market is readjusting its expectations about when the first rate hike will occur.”

 

 

 

 

 

EUR

 

Last week Draghi announced an upward revision of economic growth forecasts, giving some technical details on the application of the bond purchase program. The first purchase will be this Monday, although bonds will not be purchased unless the yield is greater than -0,2. We hope that the ECB will disappear from the front line of the headlines and let the easing program do its job.

 

The macroeconomic news published in the Eurozone was once again very encouraging. January retail sales increased and are now 6,3% above the fourth quarter level. Thus, it appears that domestic demand is recovering while the cheaper euro simultaneously offers a boost to the external sector. It is very likely that we will see a further increase in GDP in the first quarter, albeit from the modest levels of the fourth quarter of 2014.

 

GBP

 

Last week's PMI business confidence indices confirmed our view of a modest acceleration of growth in the first quarter of 2015 in the United Kingdom. February levels have managed to maintain the January rebound. Both the manufacturing and services indices are well above their long-term average. Particularly encouraging is the high level of the employment services subindex (around 57), which bodes well for expected future labor market data.

 

This news reaffirms our expectations of a rate hike by the Bank of England before the end of 2015. However, this news has not been enough to support the pound against the dollar, which fell last week against the currency US currency in line with the rest of the major currencies.

 

USD

 

All investors' attention was on last Friday's employment report, and the Bureau of Labor Statistics did not disappoint. Following a series of strong monthly reports, 295.000 net jobs were created in February and unemployment fell to 5,5%. Wage growth was somewhat weaker, with hourly wages increasing slightly by 0,1% month-on-month, although year-on-year growth stands at 2,0%, comfortably above inflation. Current unemployment is at a level that improves the Federal Reserve's estimates, bordering on being considered full employment.

 

In general terms, the labor market is growing steadily, jobs are being created and wages are increasing modestly, so it is becoming increasingly evident that maintaining low interest rates in the United States is not appropriate, therefore, the labor market interest rates is readjusting its expectations of when the first rate hike will occur. As expected, the dollar has rallied strongly following Friday's data against the main world currencies, once again reaching highs in recent years.