The currency blog

The Dollar index which measures the strength of the USD against a basket of currencies hit a 3 month high as the USD extended its recent rally. However the motivation for the rally shifted- previously the USD gained on the back of recent positive economic data in the form of retail sales and payroll numbers. Yesterday it was more a case of good old fashioned risk aversion creating a demand for the safe-haven USD. A more upbeat statement from the Fed may also have helped as they slowly turn more hawkish, however it was a clear case of risk off that drove the US dollar higher yesterday. The problem is that a weaker USD will have contributed to better economic data and now the USD is gaining we could see future economic feedback stuttering.

Looking at current levels EUR/USD has now fell back to 1.4380 and hit a low of 1.4304 a level not seen since September. The euro is still struggling on structural weaknesses within certain nations in the 16 nation zone. GBP/USD also fell into 1.60 territory before creeping back to 1.62- a fall in BRC retail sales was not good news for the UK economy and this number on release caught the market off guard with sterling dropping sharply.

Today we have not got much in the way of economic data, however as the holiday season winds closer we could see volatility as positions are closed ahead of the festive period.

Discuss on this on the Currency Exchange Forum