Thursday 3 April 2014

U.S. dollar strengthens following comments by ECB


Good afternoon,

After recovering slightly overnight Sterling lost more ground against the dollar as comments from the European Central Bank (ECB) Chairman Mario Draghi caused investors to seek the safety of the greenback. When trading opened this morning GBP/USD exchange rates were sitting around $1.6660 (recovering from $1.6627 yesterday afternoon) but ended the day trading almost a cent lower at $1.6571.

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What caused todays fall?

The day did not start well for the UK or the pound as the latest Services PMI figures failed to meet expectations, forcing sterling to lose ground across the board. On the back of the news Sterling fell around 40 pips, falling to $1.6620 and the decline
 did not stop there. The dollar took full advantage of the comments made by Mr Draghi, he indicated the ECB would not rule out further monetary policy easing and that interest rates will remain at their current or lower levels for the foreseeable future.

The comments lead investors to seek the safety of the dollar which in turn strengthened the currency, pushing the GBP/USD cross back under $1.66. Todays gains by the dollar could have be seen as fortunate, if it had not been for Mr Draghi's comments we may have seen Sterling claw back the ground it lost this morning as the U.S. unemployment claims unexpectedly rose and the trade balance figure widened.

However, that's all if's and but's, which is often the case when it comes to the FX market. All eyes will now turn to tomorrows U.S. job numbers and if the number is positive I wouldn't be surprised if we saw the GBP/USD cross back into the $1.64s.

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