US Dollar ends lower as rate hike debate continues

Enrique Díaz-Álvarez13/Oct/2015Currency Updates

The US Dollar remained under pressure during London trading yesterday, with the currency trading around three week lows amid uncertainty surrounding the exact timing of a Federal Reserve interest rate hike. This was despite some relatively hawkish comments from a Federal Reserve member that suggested interest rates are still likely to go up this year.

Today will be a much busier day in the major economies. The latest inflation data in the UK this morning will be the major focus among traders. UK inflation has remained around zero for the past seven months, with a lack of inflationary pressures suggesting the Bank of England will likely delay a rate hike further into 2016.


Despite last week’s dovish central bank minutes pushing back a rate hike in the UK, Sterling gained yesterday, appreciating by 0.1% versus the US Dollar.

The Pound continued to gain support from comments last week from Governor of the Bank of England Mark Carney, which suggested a rate hike in the UK would not necessarily wait for the Fed to act first. Fellow Bank of England monetary policy committee member Martin Weale spoke in London yesterday. Weale, who as recently as last December voted for a rate increase in the UK, did not comment on interest rates, instead claiming that there are tentative signs in the British economy that improved business confidence is providing a boost to productivity.

Inflation data at 9.30am this morning will be released in tandem with a string of other second-tier data, including producer price and the DCLG house price index, all of which could cause moderate Sterling volatility.


A bank holiday in Spain and an overall lack of any significant data releases or announcements in the Eurozone yesterday contributed to relatively little movement in the Euro. The single currency was effectively flat against the Pound and 0.1% lower versus the Dollar.

The European Central Bank claimed that Spain’s economy is picking up, although economic imbalances are still substantial in the country, while the current account in France turned back into positive in August. Elsewhere, ECB member Vasiliauskas waded into the debate as to whether the central bank should increase its QE program by claiming that there was no need to fine-tune the existing measures. Vasiliauskas stated the existing programme was functioning correctly, and should not be altered, even if inflation turns negative.

Economic sentiment data from ZEW is the focus of Eurozone trading, when released at 10am today.


Markets were very quiet in the US yesterday on account of a bank holiday in the US for Columbus Day. The US Dollar index was barely moved, down just 0.1%.

Atlanta Fed President Dennis Lockhart spoke yesterday, claiming that he believed there was enough data between now and either the October or December FOMC meetings to allow an interest rate hike this year. Speaking in Orlando, Lockhart said the US economy was on a “satisfactory track”, and reiterated his view that rates would go up in 2015. This comes despite financial markets pricing in just a 40% probability of this being the case, a cause for concern according to Lockhart who insisted markets were “misaligned” with the Federal Reserve.

Fed Member Charles Evans also repeated his view that the exact timing of a hike was not as important as keeping the pace of hikes slow and gradual. Speaking in Chicago, Evans suggested it would still be appropriate for the Fed interest rate to be under one percent by the end of next year, in other words no more than two 25 basis point hikes between now and next December.

Attention today will be on another speech, this time from Fed Member Bullard at 1pm UK time.

Rest of the world

Commodity currencies including the Russian Ruble and Australian Dollar continued to gain yesterday following a further modest rebound in oil prices.

The recent suicide bombings in Ankara weighed on the Turkish Lira, while the Polish Zloty held off uncertainty over future policy, ahead of elections this month.


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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.