US Dollar falls to five-week low on dimming interest rate hike chances

Matthew Ryan09/Jun/2016Currency Updates

The US Dollar declined to a five-week low against its major peers on Wednesday, with financial markets continuing to push back their expectations for the timing of the next interest rate hike by the Federal Reserve.

As recently as a week ago investors were earmarking the Fed’s meeting next Wednesday as the likely timing for the second interest rate hike in the US in nearly a decade.

However, last Friday’s poor labour report and perceived dovish comments from Fed Chair Janet Yellen on Monday have caused financial markets to completely discount the possibility of higher rates in the US this month.

The Dollar did, however, trim some of its losses on Wednesday afternoon following the release of an impressive set of job openings figures from JOLTS. The data dispelled some concerns about the health of the US labour market that arose following last week’s fairly dismal payrolls report.

Subdued risk appetite this morning sent the Pound lower, despite being little moved yesterday following a jump in manufacturing and industrial production for April. The manufacturing sector posted its largest monthly increase since July 2012, defying the recent economic slowdown in the UK economy that the Bank of England last month attributed to uncertainty in the lead-up to the EU referendum.

Trade balance data for April this morning was slightly better than expected, although had little impact on Sterling, particularly given the focus on the referendum. A TV debate on ITV this evening will be closely monitored by the markets with just two weeks to go until the crucial vote on EU membership.

Meanwhile, another set of weak export data in China weighed on sentiment towards emerging market currencies yesterday. Exports in the world’s second largest economy fell by a greater-than-expected 4.1% in the year to May, concerning some investors worried about the state of the Chinese economy.

Major currencies in detail:


Sterling had some respite on Wednesday following a choppy few weeks for the UK currency. However, the Pound fell 0.4% this morning against the US Dollar as investors ditched riskier assets in favour of safe-havens.

Yesterday’s production data pointed to a moderate recovery in the UK economy following a weak start to the year that saw growth fall to its lowest level in three years. Manufacturing output grew by 2.3% in the month to April, well above the flat reading expected.

Industrial production also increased by 2%, marking its largest monthly increase in nearly four years. The jump was attributed to a spike in pharmaceutical production, with output in the sector surging by 8.6%.

The monthly growth estimate from NIESR was similarly upbeat, suggesting that the UK economy grew by 0.5% in the three months to May.


The Euro fell sharply this morning, declining to a one year low against the Yen and falling 0.3% versus the US Dollar.

ECB members Nouy and Coere both spoke on Wednesday, although added little of note.

Governing Council member Francois Villeroy claimed that there were limits to how far negative interest rates could go in the Eurozone, urging care in the use of the measure. The ECB cut its interest rate on deposits to a record low -0.4% in March.

Meanwhile, President of the ECB Mario Draghi spoke in Frankfurt this morning. Draghi claimed that years of weak growth had eroded Eurozone productivity, underscoring the argument that monetary policy alone couldn’t reinvigorate the Eurozone economy.

With economic data relatively light in the Eurozone this week, the Euro continues to be driven largely by expectations for Fed interest rate hikes. German trade figures this morning are unlikely to rock the boat.


The US Dollar index declined to its weakest position since 6 May yesterday, although erased much of those losses this morning.

JOLTS job openings exceeded expectations yesterday, rising slightly to a record high 5.8 million in April from 5.76 million a month previous. The closely watched figure, which is a good barometer of labour market strength in the US, comes in sharp contrast to last week’s labour data which effectively eliminated the possibility of a June rate hike.

Jobless claims this afternoon should provide further clues as to the state of the labour market in the US when released at 13:30 London time. Investors will already have one eye on next Wednesday’s FOMC meeting.


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Written by Matthew Ryan

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