Exchange Rates Today: Dollar Supreme, Pound's BoE Headache, Euro's German Recession Fears

Germany knocks confidence in euro exchange rates today

The key story at the weekend is the recovery seen in the dollar exchange rate complex - the USD advanced against both the euro and British pound after it was shown US initial jobless claims dipped in the previous week.

The dollar quickly picked itself up after selling off following the release of what were conceived to be dovish FOMC minutes - the US Federal Reserve is in no rush to raise rates and this could keep any USD rallies contained this October.

The key take-away from the US Fed is that market data must be watched. Buyers promptly obliged after US initial jobless claims unexpectedly dipped by 1,000 to 287,000 for the week ending October 4, 2014 to build on a 7,000 decline to 288,000 (revised from 287,000) in the previous week.

Market expectations had been for claims to rise to a 295,000 level in the latest week.

As such, we see the following levels on the forex markets:

The pound to euro exchange rate @ 1.2717.
The pound to dollar exchange rate @ 1.6052.
The euro to dollar exchange rate @ 1.2624.

Beware: The above are spot market quotes, your bank will affix a discretionary spread to the figures. Note that an independent FX provider is able to provide up to 5% more currency in some cases by getting closer to the market, learn more.

The Pound Rate Today: Quietly Optimistic

The British pound ultimately remains something of a passenger on global markets at present - caught between the powerful USD on the one hand and the weaker euro on the other hand.

Of course, the picture gets even more muddled when either of the two larger currencies reverse!

On Thursday we got an unchanged interest rate decision at the Bank of England.

Despite the lack of change, the outlook is ultimately a positive one for the GBP as noted by David Lamb, senior dealer at the foreign exchange specialists FEXCO:

"The MPC's dissenting hawks continue to be drowned out by the dovish majority - but for how much longer?

"After months of marching in tandem, ratesetters in London and the US are getting closer to breaking their monetary policy lockstep.

"Yesterday the Fed's latest minutes revealed just how far the US is from hiking interest rates. While noone is surprised by today's Bank of England's rate hold, the case for a rise in UK rates is picking up steam.

"With the IMF predicting that the UK will grow faster than any other G7 economy this year, the MPC's hawks will not remain in the minority forever. While any rise is likely to be modest and unlikely to come until the first quarter of 2015, the prospect is becoming ever more real - and that is steadily strengthening Sterling.

"The Pound continues its robust run against the wallowing Euro, and the suggestion that UK and US interest rates could finally move out of sync is nudging it up against the Dollar too."

US Dollar Rate Today: Up and Down

The US dollar exchange rate complex has had an interesting few hours on global currency markets.

At the time of writing we are seeing the USD recover as US jobless data comes in ahead of expectations.

Weekly jobless claims fared better than expected, coming in at 287,000 compared to forecasts of 294,000. Adding to the pro-dollar picture was news that the more reliable 4-week average fell to 8-year lows inside of 290,000.

Ahead of the jobs data we note the USD was an under-performer.

"America’s dollar descended to its lowest in two and three weeks against the euro and yen, still suffering in the wake of dovish minutes from the last Federal Reserve meeting. The Fed singled out the dollar’s strength as a new threat to growth since it can make U.S. exports more expensive, and push down import inflation," says Joe Manimbo at Western Union.

The takeaway from the Fed minutes was that the higher the dollar flies, the longer it may take the central bank to boost interest rates from record lows reckons Manimbo.

The Euro Rate Today: Germany Woes

The euro took full advantage of the wounded US dollar earlier in the session and jumped to a two-week high above the $1.27 region.

The moves in the euro dollar rate come courtesy of dovish U.S. central bank minutes that doused hopes for an early rate hike.

"The Fed’s cautionary swipe at the dollar can help temper short-term bearishness for the euro, but its longer run prospects augur weakness with the continent’s recovery seen at risk of returning to recession," says Manimbo.

The all-important Germany economy can’t seem to catch a break at the moment as decidedly poor trade figures followed similarly grim news on factory growth.

It was shown today that August's exports dropped a whopping 5.8% - far worse than analysts had feared.

Germany’s woes keep pressure on the ECB to ramp up stimulus at a time when the Fed is scaling back its support

According to Omer Esiner at Commonwealth Foreign Exchange the longer-term outlook remains decidedly negative for the euro exchange rate complex:

"It was the latest batch of data this week that painted a picture of a German economy that looks increasingly likely to slip back into recession in Q3, which argues for further monetary stimulus from the ECB in the months ahead. So, while near-term positioning could continue to support the euro, its longer-term outlook remains very negative."

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