USD strengthens as risk aversion spreads through markets

United States Dollar:

GBP/USD has consolidated under the 1.70 level since Friday. The pound got a slight boost on the day after UK GDP data printed in line with market expectations. Although it didn’t come as a surprise it confirms that the UK economy has recovered all of its losses from the financial crisis and that the economy is growing at its fastest rate since 2007. It doesn’t do too much for rate hike expectations though, with some investors having recently pushed back their calls for a rate hike to Q1 2015 - this after the less than hawkish MPC minutes and soft retail sales data earlier in the week. The headlines indicate that all is rosy again but with average earnings struggling to keep pace with the improving jobs numbers there still appear to be a few cracks in the recovery and it indicates that there is still a fair bit of slack in the economy. GBP/USD traded to a high of 1.6995, but overall the USD is stronger this morning. Despite the weak durable goods data from the U.S. on Friday investors are half expecting the Fed to take a hawkish approach in this week’s FOMC Statement. Given the run of good jobs numbers of late there’s an expectation that the U.S. non-farm payrolls will be strong on Friday too. Also, given the situation in Gaza, Ukraine and rising tensions in Libya, the dollar is better bid on safe haven demand. `

We expect a range today in the GBP/USD rate of 1.6960 to 1.7025

Euro:

EUR/USD dropped from 1.3466 on Friday to a low of 1.3421. It was mostly explained by the stronger USD but data by way of German Ifo Business Climate didn’t help –the index fell to 108.0 points in July from 109.7 points last month, indicating that the prevailing business conditions in Germany were becoming less favourable over the last few months. European equity markets also had a bad day on Friday as risk aversion rippled throughout financial markets. EUR/USD opens this morning at 1.3435. Whilst a lot of the attention will be given to the FOMC statement this week investors will also have a keen eye on European inflation data including German Prelim CPI on Wednesday and CPI Flash Estimate on Thursday.

We expect a range today in the GBP/EUR rate of 1.2600 to 1.2665.

Aussie and Kiwi Dollars:

AUD/USD and NZD/USD have both trickled lower since Friday. The USD is stronger across the board right now but there are also some other mild local factors affecting the currencies, namely the threat of FX market intervention by the RBNZ. Furthermore China Premier Li Keqiang spoke overnight and said that although the Chinese economy had performed reasonably well through 2014, downward pressures remain. This put a bit of pressure on AUD/USD which opens this morning at .9390.

We expect a range today in the GBP/AUD rate of 1.8000 to 1.8160.

We expect a range today in the GBP/NZD rate of 1.9800 to 1.9950.

Data releases for the next 24 hours:

AUD: HIA New Home Sales m/m
EUR: No data
GBP: No data
NZD: No data
USD: Flash Services PMI, Pending Home Sales m/m