Dollar suffers in forex markets after yield hit

David Hobart

The US dollar saw an end to its run of fairly good performance on Thursday after US Treasury yields declined in value.

The problem for yields came after housing data in the country showed a negative performance in the country’s construction sector, which is often regarded as a bellwether for the economic health of the whole country.

This, in turn, made it more likely that the Federal Reserve would announce a significant interest rate cut when it next meets at the end of July. According to some analysts, the data could fuel a basis point cut of 50 – which would in turn lead to a headline rate change of 0.5%.

As a result, the US dollar index, which assesses the performance of the currency in proportion to six others from around the world including the pound and the euro, went down by 0.1%. It was recorded at 97.09 at one stage on Thursday morning.

Elsewhere, other currencies were able to mop up the demand caused by the dollar’s decline.

The single European currency rose, despite a decline in recent days due to negative economic data from countries such as Germany. This unexpected rise was in inverse proportion to the dollar: the euro went up by 0.1% in the EUR/USD pair, and hit $1.1238.

The euro has also been hampered by suggestions that the European Central Bank may be about to cut interest rates as well – and there were suggestions that if this was not on the cards, the rise on Thursday may have been significantly higher.

Perhaps the main beneficiary of the US dollar’s decline, however, was the Australian dollar.

Unemployment figures from the country were largely positive: the overall unemployment rate showed no changes and remained firm at just above 5%. While part time jobs were on the decline, this was balanced out by a significant five-figure rise in full time positions available. That metric rose by 21,100.

As a consequence, the Australian dollar went up by well over a fifth of a percentage point against its American counterpart.

At one stage on Thursday it was trading at $0.7031. It also benefited from what appears to be a brief respite in the US-China trade battle that has dominated the economic news headlines.

The Australian dollar tends to perform poorly when the Chinese economy is targeted, because of the deep and intricate trading relationship between the two major Asia-Pacific economies.

However, the relative calm for Chinese exports – coupled with some positive Chinese fundamental economic data in recent weeks – appeared to keep concerns at bay.

Earlier in the trading day, there was some rare good news for the British pound. It was holding firm at $1.2434, which was significantly higher than its position on Wednesday when it was seen in the doldrums at $1.2382. That latter figure represented its worst performance since April 2017, more than two years ago.

It was unclear what caused the bounce on Thursday, as the political tensions over the Conservative leadership race and the question marks over the Brexit process continued to rage.

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David Hobart
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