Analysis / Daily / Finance / Money

Dollar Powers Ahead of the Weaklings

One Pound

Sterling fell to its lowest in almost five years against the dollar on Friday, compounding its steepest fortnightly declines since 2010 as investors bet the interest rate paths of the UK and the United States will diverge. Bank of England Governor Mark Carney said on Thursday that he was in no hurry to raise interest rates. The recent gains by the pound against the euro can keep inflation low and therefore the BoE can put off rate hikes, he said. Carney’s comments pushed rate hike expectations further into the future, along with worries that persistently low inflation will keep rates at their historic lows for a longer time. Sterling shed over a percent against a buoyant dollar to trade as low as $1.4710, its weakest since June 2010. That came after a 4.5 percent fall over the past two weeks. Against the euro, the pound was 0.2 percent lower , but that still kept it close to the seven-year high touched earlier in the week and on track for its best quarter ever against the single currency, after gaining almost 9 percent.

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The common currency skidded 3.2 percent, suffering its biggest weekly fall since September 2011 as the European Central Bank kicked off its 1.1 trillion euro bond-buying quantitative easing (QE) stimulus programme. Against the yen, the euro fetched 127.66 , though it remained within striking distance of a near eight-year peak of 122.04. Partly underpinning the move is expectations that the Federal Reserve will soon raise interest rates. Many analysts suspect the Fed will lay the groundwork for a move as soon as midyear at this week’s policy review. The ECB’s money printing is continuing to take its toll on the euro. Euro zone bond yields were thought to have mostly priced in the QE launch beforehand, but the magnitude of their decline has shown that such expectations were premature. Goldman Sachs are predicting that the euro has further to go, with a slide to$0.80 by the end of 2017. The weakness in the euro has however had a positive impact on European shares.

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The dollar maintained its rally, trading near a 12-year high versus the euro as investors considered the timeline for higher U.S. interest rates ahead of this week’s Federal Reserve meeting. Crude oil extended its slump. EUR/USD fell to 1.0457, after reaching its strongest level since January 2003. It held weekly gains of at least 0.4 percent versus the currencies of Australia and New Zealand. The Dollar Spot Index is at a decade high as the prospect of a U.S. rate rise bolsters the appeal of the greenback relative to its global counterparts. The strong dollar however had a negative impact on US bourses, as stocks fell on Friday and the Dow and S&P 500 registered a third week of losses as the dollar resumed its climb, adding to worries about its impact on U.S. multinationals’ earnings

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