Home » US Dollar (USD) Exchange Rate Update – First Week of 2016 in Review

US Dollar (USD) Exchange Rate Update – First Week of 2016 in Review


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The first week of 2016 is one that many investors will wish to forget, as poor data regarding the Chinese economy sparked fears of a slowdown. Chinese traders rushed to sell off domestic shares, causing the Chinese authorities to activate a new system which suspended trading in order to control losses.

However, the introduction of the system on the 1st of January only served to heighten trader desperation, as a massive drop in share prices was caused by people rushing to sell their shares before trading was suspended. The panic in the Chinese stock market spread across the world and by the end of the week the total value of global shares had lost $3 trillion.

The US Dollar (USD) made significant losses against the Euro (EUR), while managing to advance against Pound Sterling (GBP) which was weakened by warnings over threats to the UK economy.

USD to EUR, GBP Exchange Rates in the First Week of 2016

The US Dollar to Euro (USD/EUR) exchange rate traded between lows of 0.9142 and highs of 0.9332 during a volatile first week of trading. Fears over the Chinese economy saw the US Dollar plummet in value against the Euro because investors worried that a weaker global economy would cause the US Federal Reserve to hold off on their planned increases to interest rates over the next twelve months.

Domestic data from the US didn’t help the exchange rate either, with a measure of manufacturing showing that sector activity was declining. The non-manufacturing sector also surprised investors as growth unexpectedly slowed. Eurozone data was more positive, even if the rate of inflation slowed rather than rose as predicted. The USD/EUR exchange rate ends the week trading around 1.0886.

It was a better week for the USD/GBP exchange rate, with Pound Sterling harmed by warnings from the Chancellor of the Exchequer, George Osborne, that there was still a lot of work to be done to ensure the security of the UK economy. During a speech on Wednesday Mr Osborne reinforced the need for more spending cuts, causing investors to fear that the next Budget will contain further harsh austerity measures.

The USD/GBP exchange rate ends the week trending in the region of 0.6870.

So, what’s likely to happen in the week ahead?

It is unclear whether China will continue to cause turbulence in the global markets in the coming week. On the one hand, Chinese officials have removed their ‘circuit breaker’ mechanism and taken steps to curb trader fears, however a lot of important economic data for China is due out over the weekend which could increase concerns over the state of the economy if the figures are poor.

Most of the important data that will affect the USD/EUR and USD/GBP exchange rates is due towards the end of next week. The most important releases for the Eurozone arrive first, with figures regarding German economic growth on Thursday, followed by the Bank of England (BoE) meeting to decide interest rates. The biggest US influencers of the week, which are retail sales figures and the influential University of Michigan Confidence index, come on Friday.