U.S. Dollar Keeps Strength, Except Against GBP

The U.S. Dollar is steadier, holding on to most of its gains from the last two days of tumultuous trading.

USD

Rapidly, the greenback has recovered more than half of its losses experienced in January. On average, most currencies have fallen by over 1.0%, ceding ground to the dollar in the midst of equity confusion and realignment of asset valuations. The Bloomberg Dollar Spot Index is now at its highest point in over three weeks.

Additionally, the Chinese Yuan fell overnight to its worst levels since August 2015, when the currency’s devaluation was the most severe in its history. This may be a sign of loosened monetary controls as the Yuan’s decline is tied to the misfortunes in its domestic stock market.

If the CNY can follow basic free-market flows, the currency may become truly available globally and less manipulated by central authorities. Thus far, Asian and other emerging-market currencies are down by half a percent against the buck.

 

EUR

The Euro has fallen based on the damage caused in stock markets and fading outlooks over monetary tightening coming sooner rather than later. However, its depreciation is starting to slow down, especially after news of successful negotiations in Germany in building a coalition in order to govern.

Recent data in Germany has revealed contractions such as a loss of 0.6% in Industrial Production in January. It is possible that some economic anxiety had built up in recent months as elections in Germany were held in September and no deal on governing had been reached until now.

 

GBP

The Pound has received a boost from an optimistic outlook from the Bank of England. The policy meeting today resulted in a unanimous agreement to maintain rates untouched, however, at the press conference that followed Carney mentioned how the committee upgraded its growth estimates.

Furthermore, he believes rates will need to be hiked sooner than previously thought, considering elevated levels of inflation. Sterling will likely stay afloat in the near-term and its fate will be tied to policy promises, that if not met, will sink the currency.