US Dollar Dips as Fed’s Powell Pushes Back on 75-bps Hike

Pound (GBP) Stumbles as UK Bans Services Exports to Russia

The Pound (GBP) initially firmed yesterday, buoyed by an uptick in UK government bond yields, as markets expect the Bank of England (BoE) to raise interest rates again today.

However, Sterling slipped in the afternoon after the UK announced a ban on services exports to Russia. The UK service sector accounts for around 80% of UK GDP, so the latest sanctions will put further pressure on the country’s economy.

The BoE meeting at noon is today’s main event. Markets expect the bank to enact its fourth successive rate hike, bringing the Bank Rate up from 0.75% to a 13-year high of 1%. However, with the UK economy facing significant headwinds, dovish forward guidance could dent the Pound.

Euro (EUR) Recovers on USD Weakness

The Euro (EUR) fell at the start of yesterday’s European session following some poor data. Germany’s trade surplus shrank in March while Eurozone retail sales contracted by 0.4% in the same month. The downside also came as the EU proposed its sixth round of sanctions on Russia, including an oil embargo.

Nevertheless, the single currency managed to rise in the afternoon. One supporting factor was the Euro’s negative correlation with the US Dollar (USD), which softened.

This morning, German factory orders showed a whopping 4.7% contraction in March. The worse-than-forecast figures could weigh on EUR.

US Dollar (USD) Slumps after Fed Rate Rise

The US Dollar slipped yesterday as traders seemed hesitant ahead of the Federal Reserve interest rate decision.

The ‘Greenback’ then slumped after the Fed hiked rates by 50 bps, with USD falling nearly 1%. The downside came as the US central bank took a less hawkish stance than markets were expecting. Fed Chair Jerome Powell pushed back on rumours of a 75-bps rate rise in the coming months, while the bank also took a less aggressive approach to reducing its balance sheet.

Looking ahead, we may see more movement as investors digest the Fed decision. In addition, an expected contraction in nonfarm productivity for the first quarter of this year could weigh on USD.

Canadian Dollar (CAD) Softens as Trade Balance Misses Forecasts

The oil-sensitive Canadian Dollar (CAD) wavered lower yesterday, despite an uptick in crude prices, after Canada’s trade surplus unexpectedly narrowed from CA$3.08bn to CA$2.49bn.

This afternoon, a speech from Bank of Canada (BoC) Deputy Governor Lawrence Schembri could cause some movement.

Australian Dollar (AUD) Jumps following Fed Decision

The Australian Dollar (AUD) surged higher yesterday evening, following the Fed decision, before softening in overnight trade.

New Zealand Dollar (NZD) Strengthens after Fed Rate Rise

Likewise, the New Zealand Dollar (NZD) jumped higher after the Fed’s rate announcement but then pared some of these gains overnight.

Samuel Birnie

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