Dollar rates today: USD broadly higher, risks remain that US data will continue to improve

Today's exchange rate markets show the USD to be in commmand:

• The pound sterling to US dollar exchange rate is 0.6 pct in the red at 1.5891.
• The euro to US dollar exchange rate is unchanged at 1.3410.
• The Australian dollar to US dollar rate is 0.45 pct lower at 0.9318.
• The dollar yen rate is 0.54 pct higher at 9970.

[Please Note: All quotes here are derived from the wholesale spot markets. Your bank will charge a spread at their own discretion. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please find out more here.]

US data improvements and bets on tapering

The US dollar continues to be driven by the interplay between better-than-expected economic data releases and bets on when the US Fed will stop expanding its balance sheet via asset purchases.

There had been concerns the government shutdown would have had a significant downward impact on the data, however the data seen so far has proved relatively firm.

The recent stronger than expected US data (Q3 GDP, October employment report and ISM surveys) have proved particularly helped to USD gains.

"We still think the Fed will be reluctant to taper as early as December with the upcoming budget talks early next year. However, should we see a continuation of better than expected US data this could bring forward market expectations of QE ‘tapering’ which would likely prompt further USD gains," says a note from Lloyds Bank Research.

NFIB Small Business Optimism could see some interest this afternoon but with few major releases this week; focus will likely turn to various fed speakers as the market looks to the gauge the likely timing of QE ‘tapering’.

Euro exchange rates remain firm, where is EUR/USD heading next? 

Despite improving sentiment on the US dollar, the euro remains as resistant to downside pressures as ever.

EUR/USD has recovered slightly since dipping briefly below the 1.33 level last week following the refi rate cut by the ECB.

IMM positioning data showed EUR net long positions were pared back ahead of the November ECB meeting, more than halving from the week before, in anticipation that the ECB would act in response to the weak October CPI print.

"The surprise announcement of a refi rate cut will likely have seen EUR long positions decline further. EUR long positions are likely to be largely flushed out now; the negative sentiment toward the EUR has meant EUR/USD has overshot to the downside relative to 2y forward points (chart 1), so it’s perhaps not surprising to see a slight corrective move in EUR/USD," say Lloyds Bank Research.

Lloyds advise that they think the 1.3420/40 area should provide some decent resistance, and we prefer to play EUR to the downside ahead of Q3 GDP numbers on Thursday.

Emmanuel Ng at OCBC confirms the EUR/USD will remain dependent on data releases:

"Expect the EUR’s fortunes to remain fairly data dependant after the ECB’s surprise rate cut (remember the decision was not unanimous) last week and the pair may remain grounded near the 1.3400 neighbourhood pending EZ GDP numbers due on Thursday.

"On the topside, the 55-day MA (1.3485) is expected to serve as a key resistance while supports are
expected towards 1.3375 before 1.3340."