It has been action on global forex markets over the past 24 hours - the US dollar slumped allowing both the British pound and euro to recover lost ground.
The dollar (USD) slumped on Wednesday afternoon as a 'perfect storm' of negative US data was released.
Could this be the end of the USD rally? We reckon a period of consolidation will shape up at the very least.
On Thursday it was the euro that was in the firing line though - investors have started pulling money out of the Eurozone's peripheral economies ensuring bond yields rocket and the outlook starts to turn a little darker.
In the midst of this it is the pound sterling that has benefited the most:
Latest exchange rates at the time of writing:
- The pound to euro conversion: 0.48 pct higher at 1.2537 on Thursday. The rate crashed 0.74 pct lower with 1 GBP = 1.2475 EUR on Wednesday afternoon.
- The pound to dollar conversion: 0.22 pct higher at 1.6056. On the previous day the rate rocketed 1.0 pct higher and saw 1 GBP = 1.6059 USD.
- The euro to dollar conversion: 0.24 pct lower at 1.2807. Following the US data the rate shot up an eye-watering 1.64 pct ensuring those who were quick could enjoy an exchange rate of 1 EUR = 1.2869 USD.
Beware: The above are spot market quotes, your bank will affix a discretionary spread to the figures. Note that an independent FX provider is able to provide up to 5% more currency in some cases by getting closer to the market and ensuring the correct market-beating orders are in place, learn more.
What Happened to the Dollar?
The sudden slump in the USD comes on the back of some eye-opening and worrying data.
NY Empire State Manufacturing Index (Sep) came in at 6.17, well below expectations for 20.50.
PPI inflation data came in at 1.6 pct month-on-month in September, analysts had expected 1.8 pct.
And Retail Sales ex Autos (MoM) (Sep) came in at -0.2 pct - analysts had expected growth of 0.3 pct.
This is worrying - it appears the US economy has started to slow down. While this has been expected to be happening in the UK economy it was expected that the US would steam ahead.
We see this as being a sudden, and rude, interuption to the USD bull run.
Pound to Dollar Exchange Rate: GBP/USD Sees No Benefit From Jobs Data
Ahead of the USD slump it was confirmed the UK economy continues to head in the right direction - however traders ignored the UK currency. Indeed, we believe the recent climb in GBP/USD is more a function of USD weakness than GBP strength.
The unemployment rate confounded expectations to record its fastest drop in history - it now rests at 6%. Wage growth also crept up to record 0.7% gains in August.
The pound was hit lower on the previous day by news that UK inflation fell to 1.2% in September, analysts had predicted a fall to 1.4% - this should ensure that the Bank of England retains a sanguine view to raising interest rates.
"On balance, the recent run of U.K. economic data suggests that the previously robust economy is coming off of the boil and that the Bank of England may have more time than originally thought to keep lending rates at record low levels. As investors push out their expectations for the timing of the first BOE rate hike, the pound will likely continue to struggle," says Omer Esiner at Commonwealth Foreign Exchange.
Pound Euro Exchange Rate: Outlook Still Favours GBP
The euro is hammering the pound today - the GBP/EUR has been caught in the cross-fire of the euro/dollar rally. It seems as though it is buy EUR at all costs at the time of writing.
Nevertheless, Bill McNamara at Charles Stanley looks through the noise to focus on the longer-term technical setup for GBP/EUR.
The GBP remains in an uptrend and McNamara is sticking with his target of GBP to EUR at 1.300:
"The pound lost ground relative to the single currency for the second week in a row (-0.62%) although it should be noted that it appeared to find support at around 1.265 and it did close above the lows of the week. Some profit-taking looks to be underway after a strong run but the longer-term outlook still points to higher levels for sterling."
Euro Dollar Exchange Rate: Industrial Production Slides
The euro is the ultimate winner of the slump in the USD as traders jump out of one over-bought currency into an over-sold one.
It is far too early to suggest the negatve-euro scenario has ended - far from it - but this relief rally will certainly catch traders by surprise.
Earlier, the euro fell back toward the lower end of its recent range against the dollar overnight as the latest batch of economic data pointed to an increasing risk of the 18-member bloc slipping back into recession.
Euro zone industrial production slid by 1.8% (m/m) in August, which was worse than the forecast for a 1.6% (m/m), but not completely unexpected given the very weak country level output numbers released last week.
Separately, German ZEW investor morale slid to -3.6 in October, the first time the key indicator posted a negative print since November 2012.
"Overall, recent data should intensify pressure on the ECB to ease monetary conditions further, likely with an outright bond purchase scheme (QE). As such, any upside the euro enjoys should remain very short-lived," says Omer Esiner at Commonwealth Foreign Exchange.
