US Dollar Stumbles as Odds of 2019 Fed Interest Rate Hike Fall

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  • Modest Improvement in Westpac Consumer Confidence Leaves Australian Dollar Lacking – Reserve Bank of Australia Bulletin to weigh on AUD exchange rates today
  • Conservative Leadership Challenge Fails to Weigh Down Pound – GBP exchange rates remain vulnerable to political developments
  • US Dollar Stumbles as Odds of 2019 Federal Reserve Rate Hike Diminish – Rising jobless claims may add to bearishness
  • Euro Benefits from Stronger Eurozone Industrial Production – Single currency vulnerable ahead of ECB policy announcement

Australian Dollar Softens as Consumer Confidence Sees Minimal Uptick

The Westpac consumer confidence index saw a slight uptick of just 0.1% on the month in December, limiting support for the Australian Dollar. Signs continue to point towards domestic economic momentum weakening heading into 2019, something which could keep the Reserve Bank of Australia (RBA) on hold for longer. While market risk appetite generally picked up, driven by signs of easing US-China trade tensions, this was not enough to shore up AUD exchange rates.

This morning’s RBA Bulletin could provoke fresh volatility for the Australian Dollar as investors continue to weigh up the odds of monetary policy tightening next year.

Pound Pushes Higher in Spite of May’s No Confidence Vote

Although Conservative MPs triggered a vote of no confidence in Theresa May this failed to weigh down the Pound yesterday. GBP exchange rates instead rallied in the wake of the news, buoyed by confidence that May will survive the challenge. Even if MPs are able to oust May, though, there are hopes that this could force the postponement of the March Brexit deadline in the face of fresh political uncertainty.

As long as questions over Brexit persist, however, the Pound is likely to remain biased to the downside thanks to worries over the domestic outlook.

Solid Eurozone Industrial Production Shores up Euro

Eurozone industrial production saw a solid improvement in October, with output rising 1.2% on the year and encouraging greater confidence in the economic outlook. With global trade tensions showing signs of easing the appeal of the Euro improved, as weaker international demand has weighed on the growth of the currency union. While political tensions in France continued to build this was not enough to weigh down the single currency at this juncture.

Tonight’s European Central Bank (ECB) policy announcement could weigh heavily on EUR exchange rates, however, if policymakers show signs of increased dovishness.

Easing Inflationary Pressure Reduces Odds of 2019 Fed Interest Rate Hike

As anticipated, the US consumer price index lost momentum in November as the headline index eased from 2.5% to 2.2%. As inflationary pressure within the US economy eased the case for future Federal Reserve monetary tightening diminished, leaving the US Dollar on a weaker footing. While the Fed is still widely expected to raise interest rates at next week’s policy meeting this prospect did little to support USD exchange rates.

Unless tonight’s jobless claims figures prove encouraging, pointing towards a tightening of the labour market, the strength of the US Dollar is likely to remain limited.

Canadian Dollar Softens as Signs Point Towards Easing Production

In a fresh blow to confidence in the Canadian economy the third quarter capacity utilisation rate slumped from 84.1% to 82.6%. This weakness suggests that companies are easing back on production, potentially signalling an easing in economic growth. Even so, as oil prices continued to hold above the psychologically important level of US$60 per barrel overnight this offered a boost to CAD exchange rates.

A disappointing showing from October’s new housing price index, though, could leave the Canadian Dollar on a weaker footing.

Risk Appetite Fails to Support New Zealand Dollar Demand

The New Zealand Dollar failed to hold onto a positive trend yesterday even as market risk appetite generally improved. In spite of reports that China will alter its economic policy in response to US pressure the mood towards the risk-sensitive NZD remained bearish. With confidence in the outlook of the New Zealand economy limited NZD exchange rates failed to find any fresh upside, encouraging profit taking.

If November’s food price index eases as forecast the New Zealand Dollar is likely to lose further ground this morning.

Data Released

December 13th 08:45 NZD Food Prices (MoM) (NOV) 0.4%
December 13th 11:00 AUD Consumer Inflation Expectation (DEC) 3.5%
December 13th 11:01 GBP RICS House Price Balance (NOV) -10.0%
December 13th 23:45 EUR European Central Bank Rate Decision 0.0%
December 14th 00:30 CAD New Housing Price Index (YoY) (OCT) 0.1%
December 14th 00:30 USD Initial Jobless Claims (DEC 8) 225,000

Post by TorFX

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