The US dollar strengthens as the market expectations for mid-year hike increase

Last week the Dollar made gains across the board as the US employment data impressed. The US Non Farms Payrolls beat expectations, posting gains of 295k. The positive labour data has continued to excel; in the past three months payrolls have averaged growth of 288k whilst the six-month average now stands at 293k. In addition, US unemployment rate fell to 5.5%, the lowest level since May 2008, and within the range of what some FOMC members regard as consistent with full-employment. There will be  a lot of attention on the FOMC meeting next week. The strong job numbers has strengthened the likelihood that the FOMC will decide to drop the terminology ‘patient’ and has raised expectations of a mid-year interest rate hike.

Friday’s employment data has strengthened the Dollar against the Euro resulting in its strongest level since mid-2003, breaking through the key psychological level of 1.10. Sterling also lost ground against the Greenback but is back towards the highs last seen in 2007 against the Euro. With the FOMC looking to hike rates whilst the ECB are printing money (QE), the Dollar is likely to continue its strong path as monetary policy between the US and Europe continue to diverge. Meanwhile, Sterling has the pending headwinds of the General Election on the horizon. US Dollar buyers should consider hedging part of their currency exposure.

Monday

  • Eurogroup Meetings

Tuesday

  •  Chinese CPI (Inflation)
  • US JOLTS Job Openings
  • BoE Gov Carney Speaks - Due to testify before the Lords Economic Affairs Committee in London

 Wednesday

  •  UK Manufacturing
  • ECB President Draghi  Speaks - Due to speak at the ECB and its Watchers XVI Conference
  • Reserve Bank of New Zealand Rate Decision

Thursday

  • US Retail sales
  • US Weekly Initial Jobless Claims

Friday

  • US PPI (factory gate inflation)
  • US UoM consumer confidence