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May 2016

USD stronger on June rate hike hopes

Published: Wednesday 04 May 2016

  • USD stronger on June rate hike hopes
  • NZD strengthens on positive employment data
  • Aussie service sector contracted again
     
Oh dear. The man described by the Republican Speaker of the House, John Boehner, as "Lucifer in the flesh", Ted Cruz has pulled out of the race for the US Presidency. That kind of leaves Donald Trump as the Republican choice. As a friend of mine put it so aptly, the President's speech writers will have to change the endings in the future to God help America.
 
That won't be the reason for the US Dollar strength overnight (heaven forfend). No that would be the comments from two Federal Reserve members who both called for a June interest rate hike.  The theme appears to be that this isn't about rate hikes so much as normalising the monetary policy. I know its semantics but we know what it really means. Those with an interest in buying US Dollars maybe need to move swiftly to avoid further declines in the GBPUSD rate. We also saw the Euro-US Dollar rate drop by a cent and a half on the news.
 
The New Zealand Dollar is also stronger this morning after employment rose at twice the forecast pace in Q1 but the gains were tempered by the fact that more people were seeking work and that pushed the unemployment rate up to 5.7%; a smidgeon worse than the forecasters were hoping for.
 
By way of contrast, the Australian Dollar weakened after news that the service sector contracted once again in April. The 49.7 index reading is marginally up on the previous month but still below the 50 level (the separator between growth and contraction).
 
Sterling has had a muted start to the day after the British Retail Consortium reported the third anniversary of falling shop prices. Intense competition and heavy discounting are rife and that is keeping retailers under pressure. The recent loss of Austin Reed and BHS are not isolated incidents. This news plus a poll showing the Exit supporters are ahead in the impending EU referendum, have conspired to weaken the Pound overall.
 
The rest of the day is dominated by purchasing managers indices but we will also get the US durable goods orders and trade balance. Will it make a lot of difference to the value of the USD? Maybe, but it depends on a combination of the US Service sector index, and the durable goods data. If both are positive, then the calls for June rate hikes will start to gain credibility but the opposite is also true. Drum roll please!
 
And a couple from the West Midlands are £1,200 out of pocket after they booked flights to Las Vegas but rather than from Birmingham in England, the flights were due to be boarded in Birmingham, Alabama. I am guessing the flights were pretty cheap and, whilst it is horrible that the couple has missed out, as we all know, if it looks too good to be true, it generally is.
 

Cabin Crew humour

  • A pilot during his welcome message: "Delta Airlines is pleased to have some of the best flight attendants in the industry. Unfortunately, none of them are on this flight!"
  • A flight attendant's comment on a less than perfect landing: "We ask you to please remain seated as Captain Kangaroo bounces us to the terminal."
  • After a real crusher of a landing in Phoenix, the attendant came on the horn, “Ladies and Gentlemen, please remain in your seats until Capt. Crash and the Crew have brought the aircraft to a screeching halt against the gate. And, once the tire smoke has cleared and the warning bells are silenced, we'll open the door and you can pick your way through the wreckage to the terminal."
  • Part of a flight attendant's arrival announcement: "We'd like to thank you folks for flying with us today. And, the next time you get the insane urge to go blasting through the skies in a pressurized metal tube, we hope you'll think of US Airways."
  • After a particularly rough landing during thunderstorms in Memphis, a flight attendant on a Northwest flight announced, "Please take care when opening the overhead compartments because, after a landing like that, sure as hell everything has shifted."

  Today's Major Economic Releases

 
Market BST Data/Event Previous Expected
GBP 09:30 UK: Construction PMI 54.2 54.1
EUR 10:00 EU: Retail sales m/m 0.2 0.1
USD 13:15 US: ADP Non-farm employment change 200 205
CAD 13:30 Canada: Trade balance -1.9 -1.2
USD 13:30 US: Trade balance 47.1 45.6
USD 15:00 US: ISM Non-manufacturing PMI 54.5 54.9
USD 15:00 US: Factory orders -1.7 0.7

Daily Currency Insight by David Johnson
Daily Currency Analysis with Zeta Webber

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