In September 2015, this column argued that Federal Reserve hikes are largely negative for the U.S. dollar once a tightening regime begins. Let’s look at how the U.S. dollar responded to each of the last three Fed tightening cycles (1994-1995, 1999-2000 and 2004-2006) as well as the existing one. One common theme was found.
The price of gold fell yesterday as risk sentiment improved following sharp falls in the equity markets the day before. The dollar bounced back thanks to better-than-expected readings in the Philly Fed Manufacturing Index and weekly U.S. unemployment claims while a mini flash crash in the British pound/U.S. dollar currency pair also helped to underpin the Dollar Index, which in turn increased the pressure on gold.
After stronger than expected readings for UK CPI, wages and employment figures in the past couple of days, today saw retail sales come in at 2.3% for the month of April, which was significantly higher than expected. The pound jumped above $1.30 as we had anticipated yesterday following the retail sales data. You can read our British pound/U.S. dollar (GBP/USD) currency pair report by clicking here.
Equity markets in Europe are trading a little mixed on Tuesday, offering little direction for US futures ahead of the open on Wall Street, while commodities are broadly in the green as oil looks to extend its winning run to five straight sessions. There have been some interesting moves in currency markets this morning, with sterling being particularly volatile on the back of some interesting inflation data.