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    The dollar weakness and Sterling strength in focus

    The dollar bulls are finding extremely difficult these days to find opportunities which can push the currency higher. The green back has been making monthly lows and the downward trend is picking up more steam as one of the most crowded trade is unwinding.

    Mostly, this is due the economic data, which has surprised the investors towards the downside and continuously displaying that the U.S. economy is becoming weak. What we need to see is that the consumer spending should be taking off and this will confirm that the U.S. public is utilising the increase in the purchasing power to boost the economy. One way of that will be increase in the wage growth, which will make the consumers more confident however, the U.S. non farm payroll stat wasn’t encouraging to show this element and this has translated into softer spending.

    The other question which is haunting the U.S. dollar is the interest rate hike. But given the spilt between doves and the Hawks in the Fed committee, it is kind of difficult to see which sides is making the most compelling argument. Yes, you  want to see the economic data improving and this will make you support the hawk’s view, but given the first quarter is quite weak, it is difficult to see that. The data for the second quarter has been mixed so far and we need to see the economic data picking up sharply to keep the bloodline going for the Bulls.

    The Bank of England has also provided not so clear signals yesterday which is causing the volatility for the pair. But, the pair is strong against the dollar- of course, because of the weaker dollar strength, but the cable is not finding much strength against the euro.

    The Bank of England is still using the dovish approach in their communication, but despite that they have tempered any kind of expectations that the free money is available for unlimited time and the market is perhaps is getting ahead of itself. However, they still confirmed that their monetary policy will depend on the fiscal policy under which the government could be announcing massive tax cuts and more spending. The Bank of England has cut its growth forecast for this year and for the following year during their inflation report. Although, it may sound that the bank’s committee is very dovish, but certainly not, because the bank is still in line next to raise the interest rates higher after the Fed.


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