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Oil Weakness Puts Strain On The US Dollar

Published 03/02/2016, 06:05
Updated 14/05/2017, 11:45

The strength of the US dollar has weakened since last Friday’s rally. This is partly due to a continuation of weakness in crude oil, which has left investors pouring money into safe haven currencies such as Euro and Yen. Stock markets have also been falling steadily since the turn of the week, as negativity has crept back into the market with a falling oil price.

With a data packed week ahead of us; Bank of England interest rates decision on Thursday, non-farm payrolls in the USA on Friday, it could mean that currencies stay range bound until the latter part of this week.

The Japanese yen seems to be holding its ground gained after the Bank of Japan announced a negative rate cut on Friday last week. This was a surprise for the markets, and the reaction of US dollar Japanese yen was a rally which ended at the six-week high.

So in the UK all eyes are now on Thursday’s interest rate decision from the Bank of England. It is expected to stay unchanged, however there is always a surprise in store in the market.

An analyst from Societe Generale (PA:SOGN), said, “The BoE has an opportunity this week to address market expectations, which are pricing in some probability of a rate hike this year. We expect BoE Governor Mark Carney to push back against the market rate expectations. The UK services PMI due this week will also be a factor for sterling.”

The forecast of a rate hike during 2016 is mixed between most analysts. Many state that the United Kingdom will follow the lead of the Federal reserve, which hiked rates for the first time in almost a decade at the back end of 2015. However the Bank of England has issued caution on any rate hikes in the short term.

Notes associated with the interest rate decision on Thursday should give a clearer picture of what may happen in the months ahead.

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