US Dollar Outlook Grim as Interest Rates become Pressing Issue

July 11, 2016 - Written by Ben Hughes

STORY LINK US Dollar Outlook Grim as Interest Rates become Pressing Issue

The US Dollar has been mixed on the whole lately, on account of Fed forecasts that a low interest rate is not likely to be beneficial to the health of the economy.

The 'Buck' has been stable and positive today, though the Pound has risen against it thanks to news that Theresa May will become Prime Minister by Wednesday at the latest.

GBP EUR Exchange Rate Forecast to Recover on Dijsselbloem Comments

The euro (currency : EUR) has bullied the Pound Sterling (currency : GBP) during recent sessions following the decision by UK voters to quit the European Union.

The move briefly sent the Pound euro exchange rate down through the 1.1600 GBP EUR threshold during the middle part of last week’s session as investors moved out of the UK unit, however some analysts are now suggesting that, following comments from head of the eurogroup of Finance Ministers Jeroen Dijsselbloem on Friday, these losses for GBP EUR could be put into reverse.

The Dutch money man told reporters that major eurozone nations including Spain and Portugal risked facing economic penalties for their persistently high budget deficits, stating that,

‘Sanctions are absolutely a possibility because they are in our rules and regulations and when you look at the current situation in Spain and Portugal there was a serious reason to look at sanctions.’

Positive US Labour Market Data Predicted to Weigh on EUR Exchange Rates

Elsewhere, Friday afternoon’s stellar US jobs data represents a real threat to the shared currency.

The consensus expectation amongst analysts was that the headline Non-Farm Payrolls job creation numbers would show that 175,000 new positions had been generated in the world’s premier economy last month. When the June figure printed at a whopping 287,000, the US Dollar (currency : USD) enjoyed instant gains against the euro. However, the attendant losses for the single currency were tempered by the fact that May’s counterpart statistic was downwardly revised to a paltry 11,000.

Andrew Hunter of Capital Economics explained in a research note published after the data, that the go-ahead showing from June’s job generation figure,

‘Suggests that the sharp slowdown in the preceding months was nothing more than a blip.’

He went on to forecast that the Federal Reserve will act on exchange rates sooner rather than later, stating that,

‘Fed officials will want to see evidence of a more sustained recovery in employment growth over July and August as well, but this nonetheless supports our view that the next hike could still be in September.’

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