US Dollar (USD) Tumbles as Fed Set for Policy Slowdown
The US Dollar (USD) plunged yesterday as markets continued to reprice the American currency in anticipation of a softer approach from the Federal Reserve. On Wednesday evening, Fed Chair Jerome Powell signalled that the US central bank would slow its pace of rate rises at its next meeting, with the headwinds carrying over into Thursday’s trade.
In the afternoon, easing US inflation data and a contraction in manufacturing activity added to USD’s downside. With inflation coming down and the economy slowing, smaller Fed rate rises look inevitable.
Today, the latest non-farm payrolls report is in focus. Economists expect a sharp slowdown in the American labour market, which could prompt further selling around the US Dollar.
Pound (GBP) Roars Higher on Fed-Inspired Hopefulness
The Pound (GBP) skyrocketed yesterday as hopes of less aggressive interest rate rises from the Federal Reserve cheered GBP investors. Lower US interest rates will put less pressure on the UK economy, which has become increasingly vulnerable to external shocks in recent months.
The UK’s final manufacturing PMI may have added to the upside a little. The survey score unexpectedly improved, although it remained in contractionary territory.
Amid a lack of UK economic data today, sentiment around the UK’s economic outlook could drive GBP.
Euro (EUR) Strengthens amid USD Weakness
The Euro (EUR) also surged higher yesterday, with the single currency enjoying its negative correlation to the tumbling US Dollar.
The latest Eurozone unemployment data also boosted EUR, with the jobless rate unexpectedly dipping to a fresh record low of 6.5% in October.
With high-impact US data due out this afternoon, the Euro could once again trade in relation to the US Dollar. Will another drop in USD boost EUR?
Canadian Dollar (CAD) Weakens in Tandem with Bond Yields
The Canadian Dollar (CAD) fell yesterday, with the ‘Loonie’ suffering from its positive correlation to the US Dollar and a steep decline in Canadian government bond yields.
Canada’s November employment data is in the spotlight for CAD investors today. Could an expected rise in the jobless rate and cooling wage growth see the ‘Loonie’ fall further?
Australian Dollar (AUD) Moves Higher on Fed Tailwinds
The Australian Dollar (AUD) edged higher in overnight trade as the expectation of lower Fed interest rate rises continued to cheer investors, thereby boosting the risk-sensitive ‘Aussie’.
New Zealand Dollar (NZD) Buoyed by Market Optimism
The New Zealand Dollar (NZD) also enjoyed risk-on flows, with global markets celebrating the prospect of less restrictive monetary policy from the world’s largest central bank.