US Dollar (USD) Declines as Markets Continue to Trim Fed Expectations
The US Dollar (USD) softened during yesterday’s session. The latest US PPI came in cooler than forecast, pushing the US Dollar sharply lower as investors further scaled back their expectations for Federal Reserve rate hikes.
However, the ‘Greenback’ was able to recoup almost all of these losses by the end of the day. Skittish investors flocked to the safe-haven currency after a missile strike on Poland stoked fears of an escalation of the war in Ukraine.
Looking ahead, a recovery in US retail sales may support the ‘Greenback’ this afternoon. That said, an upbeat market mood or dovish Fed comments could overpower any upside.
Pound (GBP) Firms amid Mixed Jobs Report
The Pound (GBP) strengthened against many of its peers yesterday, despite a mixed labour market report, as above-expected wage growth prompted Bank of England (BoE) interest rate rise bets.
In addition, another sign of cooling US inflation supported Sterling. High inflation and rising US interest rates present significant downside risks to the UK economy. Therefore, GBP investors cheered the below-forecast US data.
The publication of the UK’s consumer price index leaves the Pound on the back foot this morning. A stronger-than-expected surge in domestic inflation is stoking concerns over the depth of the recession facing the UK.
Euro (EUR) Subdued despite Positive German Data
The Euro (EUR) initially found some support yesterday, with Germany’s ZEW economic sentiment index improving more than forecast.
However, a risk-on tilt in markets put pressure on the Euro, which is considered to be a safe currency. EUR subsequently struggled against its more risk-sensitive counterparts.
Turning to today, the single currency could trade without a clear direction amid a lack of data. Later on, European Central Bank (ECB) President Christine Lagarde is due to speak. Any hints about the bank’s approach to monetary policy could impact EUR exchange rates.
Canadian Dollar (CAD) Dips as Government Bond Yields Fall
The Canadian Dollar (CAD) fell yesterday as declining Canadian government bond yields dragged the ‘Loonie’ lower.
Today, CAD investors could be focusing on Canada’s latest inflation rate. Any signs that price pressures are easing could dent Bank of Canada (BoC) rate rise bets, potentially putting further selling pressure on the ‘Loonie’.
Australian Dollar (AUD) Subdued Despite Positive Wage Data
The Australian Dollar (AUD) struggled to attract support overnight on Tuesday as a cautious market mood offset the release of a stronger-than-expected domestic wage price index.
Looking ahead, the ‘Aussie’ could face some pressure later tonight as Australia’s latest jobs figures are expected to report unemployment rose last month.
New Zealand Dollar (NZD) Muted in Risk-Off Trade
The New Zealand Dollar (NZD) was also subdued overnight as tepid risk appetite saw investors shy away from the ‘Kiwi’.