Sterling hits one-month high as US dollar falls to fresh 32-month low

by

Sterling gained from the dollar's weakness (Source: Getty)

Sterling rose to its highest level in more than a month against the US dollar in early afternoon trading today as investors continued to take in a cocktail of factors dragging on the greenback.

The pound bought as much as $1.3217 this afternoon, gaining more than 0.85 per cent over the course of the day.

That represented the highest level since early August. Sterling may have been buoyed by reasonably strong manufacturing figures, although the main driver of its increase was continued dollar weakness.

The US dollar fell to a new 32-month low against the euro in morning trading. The euro rose as high as $1.2092 against the dollar in morning trading, the highest point since the very start of 2015. The dollar index, which is heavily weighted towards the euro, also fell to January 2015 lows.

The rise in the euro back above $1.20 was prompted by yesterday’s European Central Bank meeting. Bank president Mario Draghi did not express a negative opinion on the euro’s strength, although he did say the single currency’s strength warranted close monitoring.

Meanwhile gold prices jumped this morning as an earthquake off the coast of Mexico added to the hurricane damage in the Caribbean and US east coast in driving demand for the traditional safe haven.

Read more: Earthquake off coast of Mexico prompts tsunami warning

Gold spot prices rose briefly above $1,360 per troy ounce in morning trading, the highest point since August 2016.

Simon French, economist at Panmure Gordon, said: “This now brings the gold price in line with our near term price target and is consistent with the structural factors that we believe remain supportive for the gold price to push higher.”

In recent months the dollar has suffered from multiple issues forcing it lower against other major currencies, including political failures, multiple climate-related disasters, geopolitical tensions and weak inflation in the US.

The latter, in particular, has made it more difficult for the Federal Reserve’s Federal Open Market Committee (FOMC) to justify hiking interest rates.

The dollar’s fall could “pick up greater traction”, according to Viraj Patel, foreign exchange strategist at ING.

“We may require a mighty turnaround in US data over the coming months to convince the FOMC to raise rates in December,” he said. “This is becoming increasingly unlikely and, judging by more muted comments from Dudley overnight, it seems that Fed officials are also losing faith.”

Read more: Stanley Fischer is stepping down as vice chair of the US Federal Reserve

US 10-year government bond yields fell to their lowest since Trump’s election on Friday morning, at less than two basis points above two per cent (2.018 per cent), according to Tradeweb. Bond prices, which move inversely to yields, have been boosted by the Fed’s difficulties in raising rates, as well as safe-haven flows.

The dollar could potentially find support from US fiscal, rather than monetary, policy if the White House succeeds in passing the big corporate tax cuts envisaged by US President Donald Trump.

However, the administration has struggled to pass any meaningful legislation since Trump took office last November. Trump has since criticised members of his own Republican party, neglecting to build the alliances needed to pass major bills. Instead, he this week struck a short-term deal with Democrat lawmakers to avert a showdown over raising the so-called debt ceiling, a limit on government funding.

Read more: US tax reforms lay the foundations for an M&A boom