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The US Dollar is weaker, why is this so?

Published: Tuesday 16 January 2018

  • Reasons why the US Dollar is weaker
  • UK inflation awaited
By  David Johnson

The big mover over the past few days has been the US Dollar. The GBPUSD rate is hitting $1.38; the highest since June 2016 in the immediate aftermath of the Brexit vote. The EURUSD rate is the highest we have seen since December 2014. Dollar weakness doesn’t have a very obvious cause but is probably a combination of cautiousness over the Federal Reserve’s rate hike plans, higher commodity prices, fears that the NAFTA agreement may fail and a few other factors.
German inflation in line with expectations
On the East side of the Atlantic, the economies of Europe and the UK are improving and central bankers are planning for higher interest rates, even if the pace of change is uncertain and somewhat disparate. We have already seen German inflation in line with expectations this morning and we will also get UK inflation data this morning, which ought to reflect a small reduction to 3.0% or thereabouts. It is still at the very top end of the Bank of England’s target range and the BoE Governor will have to write to the Chancellor to say sorry. Sterling is not in control of its own destiny at the moment though; significantly stronger against the weak US Dollar but down against the Euro and many others. If this inflation data is anything more than an annualised 3.1%, the Pound will strengthen though because it will heap pressure on the Bank of England to bring forward an interest rate hike. The opposite is also true though, anything below 3.0% will see the Pound sink.
Key data to be released tomorrow
The rest of the day is light on data. There will be the US Empire State Manufacturing Index, which is watched but not heavily influential. Traders will more likely await tomorrow’s industrial production, manufacturing output and capacity utilisation data before reacting to the USD. The Dollar has regained a little of yesterday’s loss as traders have taken profit overnight.
And finally, if you were given a drone for Christmas, and I am sure you did or know someone who did, beware. The US State of New Jersey has banned ‘drunk droning’. The state has used the drink driving limit as their guide to stop people operating flying drones whilst under the influence. I suspect the same will be rolled out elsewhere at some stage because flying a drone near a prison is a big concern for all legislators. 

A very drunk guy meanders into a bar. He says to the barman, “Gimme a wh –hisky,” as he slumps into a chair.

 “Sorry,” says the bartender, “but you’ve obviously already had a little too much to drink. I can’t serve you.”

The drunk guy hauls himself to his feet and storms out, pin-balling off chairs and tables and the door posts as he goes.

Two minutes later, he walks in the side door and wanders up to the bar. “Can I have a drink please?”

“Sorry” the bartender says “but you really are pretty loaded aren’t you. I can’t serve you with an alcoholic drink. You should go home.”

The drunk harrumphs and staggers out, muttering under his breath about how ‘assolutely redicklus’ it is.

A few minutes later, he sidles in through the back door of the bar and eases up to the barman.  “Landlord,” he says, “Can I please have a drink?”

“Enough!” The bartender blurts out “I told You No Drinks. You’re drunk. Go Home.”

The Drunk looks at the barman closely and then takes a step back. “Are there any bars around here that you don’t work in?”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 09:30 UK: Consumer Price Index 3.1% 3.0%
GBP 09:30 UK: Core Consumer Price Index 2.7% 2.6%
GBP 09:30 UK: Producer Price Index Input 1.8% 0.5%
GBP 09:30 UK: Retail Price Index 3.9% 3.9%
USD 13:30 US: Empire State Manufacturing Index 18.0 18.5