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EUR/USD plunges to near two-month low as US dollar skyrockets on hawkish Fed outlook

currency-newsEUR/USD plunges to near two-month low as US dollar skyrockets on hawkish Fed outlook
The US dollar was turbocharged on Wednesday as the Federal Reserve signalled that interest rates are set to rise from 2023.

Meanwhile, the pound is holding in a narrow range so far this morning, with GBP/EUR stable at €1.1669 and GBP/USD flat at $1.3987. GBP/CAD is rangebound at C$1.7179, while GBP/AUD and GBP/NZD hold steady at AU$1.8357 and NZ$1.9781 respectively.

Looking ahead, will another improvement in US jobless claims help to propel USD exchange rates even higher this afternoon?
 

What’s been happening?

The US dollar rocketed higher yesterday after the Federal Reserve struck a hawkish tone as it concluded its latest policy meeting.

While no policy changes were made this month, the majority of policymakers now see interest rates starting to rise again in 2023 rather than 2024, with the Fed’s new rate hike forecasts being well received by USD investors.

The pound, meanwhile, enjoyed strong support through Wednesday’s European trading session, in response to a stronger-than-expect UK consumer price index.

The Office for National Statistics (ONS) reported domestic inflation rocketed up by 2.1% last month, placing it back within the Bank of England’s (BoE) target range and potentially putting more pressure on the bank to start tightening its own monetary policy.

At the same time, without any notable EUR data releases, the euro struggled to attract support yesterday, leaving the single currency to trade sideways through the majority of the session, before plunging in response to the sharp jump in the US dollar.
 

What’s coming up?

In the spotlight today will be the publication of last week’s US initial jobless claims.

This could propel the US dollar even higher later this afternoon, amidst expectations than new claims will have fallen to a new post-pandemic low in the second week of June.

The focus for EUR investors today will be on the Eurozone’s consumer price index. Could May’s finalised CPI figures see inflation revised higher and provide a boost to the euro this morning?

In the absence of any notable UK economic releases, GBP investors are likely to look to UK coronavirus developments for fresh impetus, with the pound potentially weakening if domestic statistics continue to deteriorate.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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