Almost all of 2015 was dominated by Federal Reserve interest rate hike speculation, with investors constantly revising bets of when the Fed was likely to increase borrowing costs based on the latest US data releases.
For a long time September was earmarked as the month in which borrowing costs were likely to be increased and the US Dollar accordingly climbed steadily against rivals like the Euro and Pound Sterling.
However, a dire US Non-Farm Payrolls report put paid to those expectations. While the wind was taken out of the ‘Greenback’s sails for a time, the currency soon recovered. With the Fed finally adjusting borrowing costs in December, the US Dollar firmed before the close of the year.
Summary of 2015 USD to EUR, GBP Exchange Rates
The USD/EUR exchange rate advanced from a low of 0.8182 at the start of the year to a high of 0.9528 in March. While the pairing dipped a little over the summer, the US Dollar staged another advance over the course of November as a succession of positive US ecostats made the prospect of an interest rate adjustment increasingly likely. The implication that the European Central Bank (ECB) might expand its quantitative easing measures in 2016 in order to shore up the Eurozone’s economic recovery also supported the USD/EUR uptrend. As Christmas drew near, the US Dollar to Euro exchange rate was trading in the region of 0.6722.
2015 was also fairly rocky for the USD/GBP exchange rate. While the pairing has yet to return to the highs of 0.6833 achieved in April, it’s still climbed considerably from the year’s low of 0.6297. The Conservative’s decisive election victory in May gave the Pound a boost but bets that the BoE will refrain from following the Fed with a rate hike until at least the second half of 2016, Brexit referendum concerns and less-than-impressive UK manufacturing data all weighed on Sterling towards year’s end. The US Dollar to Pound Sterling exchange rate is currently in line to close out the year trading in the region of 0.6721.
So, what’s likely to happen in the year ahead?
Well, the direction taken by the USD/GBP and USD/EUR exchange rates over the course of 2016 is largely going to depend on the Federal Reserve’s attitude to further interest rate adjustments.
If US data prints well, supporting the case for a series of adjustments over the course of the next twelve months, the US Dollar is likely to maintain a bullish relationship with its most-traded currency counterparts.
However, should the US economic outlook appear to be damaged by the Fed’s adjustment, causing policymakers to adopt a more dovish tone, the ‘Greenback’ could slide back.
Of course developments in the UK and Eurozone (with particular reference to any policy adjustments from the BoE and ECB) will also have an impact on how the US Dollar performs against the Pound and Euro in 2016.