US Dollar Soars as Fed Opens the Door to Faster Rate Hikes

US Dollar (USD) Skyrockets on Hawkish Fed Comments

The US Dollar (USD) surged yesterday after Federal Reserve Chair Jerome Powell delivered a more hawkish-than-expected testimony to Congress.

The US central bank chief opened the door to a faster pace of interest rate rises moving forward. Markets ramped up bets on a half-point hike later this month, with the odds of a 50bps move rising to 70%, which catapulted USD higher.

Today, Powell will address US lawmakers again. Any further hawkish comments could boost the ‘Greenback’. Meanwhile, if the latest American jobs data indicates tightness in the labour market, the US Dollar could climb.

Pound (GBP) Slips following Poor Sales Data

The Pound (GBP) stumbled yesterday amid renewed concerns about the UK’s economic outlook. New sales data from the British Retail Consortium (BRC) highlighted the ongoing challenges facing UK firms.

Additionally, the prospect of higher US interest rates seemed to spook GBP investors in the afternoon, causing further headwinds for Sterling.

In the absence of any notable UK economic data today, the Pound may be vulnerable to further losses.

Euro (EUR) Undermined by USD Strength

The Euro (EUR) enjoyed early support yesterday after German factory orders unexpectedly expanded.

However, strength in the US Dollar weighed on EUR in the afternoon. Still, with the market mood souring, the Euro was able to rise against its riskier peers.

The third estimate for fourth-quarter GDP growth in the Eurozone could impact the single currency today if it differs from previous readings. Investors will also be awaiting a speech by European Central Bank (ECB) President Christine Lagarde. Any hawkish comments could boost EUR.

Canadian Dollar (CAD) Enjoys USD Correlation

The Canadian Dollar (CAD) firmed yesterday as the currency enjoyed its positive correlation with the US Dollar. However, the upside was choppy for the commodity-linked ‘Loonie’ due to volatility in the oil markets.

Today the Bank of Canada (BoC) is expected to leave interest rates unchanged as it meets to set monetary policy. Such a dovish move could dent CAD.

Australian Dollar (AUD) Subdued following Huge Selloff

The Australian Dollar (AUD) licked its wounds overnight, remaining weak after Tuesday’s remarkable crash. Dovish comments from Reserve Bank of Australia (RBA) Governor Philip Lowe kept AUD on the back foot.

New Zealand Dollar (NZD) Muted amid Cautious Trade

The risk-sensitive New Zealand Dollar (NZD) initially fell during downbeat trade last night, though the ‘Kiwi’ was able to bounce back having seemingly entered oversold conditions.

Samuel Birnie

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