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Big data day ahead, and gains for safe haven currencies

David Hobart

The US dollar managed to secure some welcome positive performance on Thursday and into Friday – despite a scheduled factory data release later in the day on Friday expected to be closely watched.

The currency had not performed well as the decade got underway earlier this week, and it demonstrated problems for six consistent trading days in a row.

However, Friday seemed to be a positive enough day for the currency.

The dollar index, which tracks it against a range of other major currencies such as the pound and the euro, was up.

It reached 96.747 at one stage, which was above the low point it saw recently of close to 96.355.

The reasons for this were multi-faceted but appeared to focus in particular on problems in other major currencies around the world.

The British pound, for example, appeared to suffer after a British factory output figure for December showed that the level recorded was down at the quickest rate for eight years.

Sterling hence saw a drop to $1.3154 from its previous position of $1.3266, which it saw on Thursday.

Across Europe, the picture was even worse.

In Germany, for example, the manufacturing sector continued to contract – fuelling fears that the country is still not out of the woods economically.

The single European currency took a large hit due to this and fell to $1.1173 in its pair against the US dollar, meaning that it did not have a secure start to 2020.

This was a far cry from the peak position it occupied shortly before this, which was $1.1225.

However, the dollar was also able to surge ahead on its own merits, and not just because of poor performance in other countries across the globe.

Labour market statistics, for example, revealed on Thursday that unemployment claims in the country had gone down a little.

This, in turn, appeared to confirm the suspicions of many that the Federal Reserve central bank will avoid cutting rates over the course of the next few meetings.

Other economic data seemed to be positive for the dollar.

An index covering manufacturing activity in the country is due out on Friday and looks set to show a rise to 49.0 over the course of December – a big rise from 48.1 the previous month.

More generally, markets found themselves somewhat suspicious as trading got underway.

Around this time last year there was a significant liquidity problem for the foreign exchange markets which caused havoc for many traders which came as a result of returning to business following the holiday season.

However, the “flash crash”, as it was known, did not materialise this year.

The dollar’s performance over the course of 2020 is now in the spotlight, and among analysts it remains to be seen exactly how this will play out.

Some analysts believe that the end of the US-China trade war, which finally appears to be in sight, could in fact benefit other economies due to a rise in the level of optimism.

Safe-haven currencies felt a jump after an air strike in Iraq, by the US, has raised tensions.

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David Hobart
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