The dollar recovery over the past few days has been a talking point within the market as it has brought some landmark levels in some of the majors with the Yen hitting its highest level since 2002. The euro has also suffered losses retreating from above 1.1400 back below 1.1100 and is at 1.0935 this morning. The US economy has not been as strong as many had expected in the beginning of 2015 which has led to the pull back in the dollar as rate hike expectations are pushed back, but it also means that the bar has been lowered in terms of economic data going forward allowing greater chase of upside surprises and a dollar recovery. This is what we’ve seen since the middle of May leading to the dollar bounce and a rally in 2 year Treasury yields, however this morning the dollar is giving back some of its recent gains.
For the rest of the week sterling might see movement as the newly elected UK Prime Minister David Cameron goes on his whistle stop tour of Europe to commence talks with other EU leaders in respect to his proposed referendum on the UK’s membership of the EU. The pledge is to hold this referendum by the end of 2017, however there is mounting pressure to bring the vote forward in order to remove the uncertainty it would create for business, so there’s a growing likelihood we’ll see the vote being held in 2016 then sterling could react negatively. It’s in many people’s interests to see an earlier vote as David Cameron will not want what is both a hugely important political and economic decision to be long and drawn out whilst the Germans, who have been conciliatory and are clear in being open to negotiations, have elections in 2017 where they would not want to see a UK referendum muddying their electoral waters.
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