US Dollar (USD) Exchange Rate Softens on Pared Rate Bets

The US Dollar (USD) exchange rate came under pressure at the close of last week as the US Non-Farm Payrolls report disappointed expectations and led to some reshuffling of Federal Reserve rate-hike expectations. However, as industry experts assessed that the data wasn’t soft enough to warrant an extensive delay to the first increase in borrowing costs, the US Dollar began recovering losses against peers like the Pound (USD/GBP) and Euro (USD/EUR) over the course of Monday and Tuesday. US data has been in short supply this week, and with markets closed on Tuesday for the Veterans’ Day holiday, US Dollar movement was restrained. On Wednesday underlying Pound weakness saw the US Dollar to Pound Sterling (USD/GBP) exchange rate advance to a 14-month high. The ‘Greenback’ also derived support from the US Wholesale Inventories report for September. Inventories advanced by 0.3% in September following a negatively revised increase of 0.6% in August. This beat expectations for a 0.2% rise. Wholesale Trade Sales climbed 0.2% on the month in September rather than falling by the -0.1% forecast.

The USD/GBP pairing consolidated gains after the UK’s RICS House Price Balance fell, but the US Dollar’s advance against several of its other currency counterparts was trimmed after Federal Reserve Bank of New York President William Dudley sowed seeds of doubt regarding the timeline for increasing interest rates. Based on the most recent US economic reports, economists have been expecting the first increase in US borrowing costs to occur at the beginning of next year. However, Dudley has asserted that rates should not be raised prematurely, and that mid-2015 might be more reasonable. He stated; ‘What I can tell you is that we are making progress toward our objectives but there is considerable further progress still to go. I think the market expectations that expect us to lift off sometime around the middle or somewhat later next year are reasonable expectations. [...] I cannot give you more specifics and the long answer is: because I do not know. It really depends on how the economy evolves and how we progress toward our objectives of maximum sustainable employment in the context of price stability’.

The US Dollar softened against the Euro (USD/EUR) in response to Dudley’s remarks. Later today the US will be publishing its initial jobless claims and continuing claims figures. If the data shows that the improvements seen in the US labour market are ongoing, the US Dollar could recover lost ground and end the local session in a stronger position. Investors with an interest in the US Dollar will also be looking ahead to tomorrow and the publication of Advance Retail Sales figures.