There has been something of a shift in major global currencies in recent weeks but instead of Brexit or Donald Trump being to blame, it appears the finger is being pointed at central bankers.
Peter O'Flanagan, head of Foreign Exchange Trading with Clear Treasury in London, said the dollar had dropped 8% since its January high. "It was one of the worst quarters for the dollar in seven years and the Fed opted to raise rates in that timeframe. Markets were expecting three hikes and we've seen two already. The chances of additional hikes have diminished based on declining data we've seen coming out of the US."
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However, he said continued dollar weakness was not necessarily guaranteed. "We need to see a pick up in data. US non-farm payrolls, which cover the labour market, are due on Friday. We would need to see a more hawkish tone or we would want to see the committee sounding a bit more positive on rates for the dollar to build up strength again," he explained.
Looking to the pound and the Bank of England, Peter O'Flanagan said inflation was becoming a concern. "It's running at 2.9% and wage growth is running at 2.1%, meaning most are experiencing negative wage growth. That has an impact on living standards and spending."
The Bank of England could opt to increase rates to try to bring inflation under control. Peter O'Flanagan said the pound was already trading on the expectation of a rate hike. "It's rallied 4% since the beginning of March. That's based on the expectation of the Bank of England raising rates. It leaves it vulnerable if they don't," he said.
He said there may be an element of the market getting ahead of itself when it came to the euro and the European Central Bank. "Recent comments from Mario Draghi have been perceived that he may look to taper bond purchases. The ECB pushed back on those comments saying they're not looking to ease at the moment. They want to remain more reactive rather than frontrun any changes," he concluded.
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MORNING BRIEFS - The state's coffers are about to receive another €448m from the sale of a stake in AIB. The state sold 25% of the bank at €4.40 per share in recent weeks yielding about €3 billion. But it sold an additional 3.7% of the bank, the proceeds of which were held in reserve to support the share price in the event of it falling. That was not necessary and now Deutsche Bank will release that additional cash to the Exchequer.
*** Fuel and forecourt retailer Applegreen is to acquire the trade and some assets of the Brandi group, which is a forecourt retail operation in South Carolina. Under the terms of the deal, Applegreen will pay $5.4m and a leading US institutional real estate investor will acquire certain property assets of the business for $70.1m. Applegreen will then lease the property assets from the investor. The business comprises a total of 42 sites located in or close to the city of Columbia, the state capital of South Carolina.
*** The US Federal Reserve opened the books on what was discussed at its latest meeting in June last night. The committee opted at that meeting to raise interest rates but of more interest in the ensuing discussion was the belief by many that the bank should start unwinding the massive balance sheet it built up during its quantitative easing programmes. The Fed has about $4.5 trillion of bond investments on its balance sheet and the majority of policy committee members want to start reducing that by the end of the year.
