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US dollar dips on easing Fed rate hike bets

currency-newsUS dollar dips on easing Fed rate hike bets
The US dollar ticked lower on Friday, undermined by a repricing of Federal Reserve rate hike bets.

Meanwhile, the pound opens this week on the front foot, with GBP/EUR buoyed at €1.1782 and GBP/USD climbing to $1.1901. GBP/CAD is rangebound at C$1.5450, while GBP/AUD and GBP/NZD tick up to AU$1.7485 and NZ$1.93012, respectively.

With economic data thin on the ground today, could movement in the currency market be limited at the start of this week?

What’s been happening?

The US dollar was subdued at the end of last week, as USD investors appeared to scale back their expectations for a 100bps interest rate hike from the Fed later in the month.

This came despite US retail sales printing above forecast in July, something which Fed policymaker Christopher Waller suggested could incentivise him to support a larger hike.

The pullback in the US dollar provided more room for the euro to recover thanks to the negative correlation between the pairing.

However the euro’s upside potential remained capped amidst concerns over Italy, following the collapse of its coalition government.

Meanwhile, the pound continued to trade without any strong conviction on Friday. This may have been a result of GBP investors being reluctant to make any aggressive bets ahead of the first televised debate for the Conservative leadership race.

What’s coming up?

Looking ahead a key focus in the first half of this week will be the UK’s latest jobs report.

With unemployment expected to remain unchanged, the focus is likely to be on the accompanying wage growth figures.

This could see the pound weaken if real pay continued to lag well behind inflation in May.

For EUR investors the focus in the first half of the week will be on the Eurozone’s latest inflation release. If June’s finalised figures are revised higher we could see the euro strengthen on hopes it will push the European Central Bank (ECB) to be more aggressive with its upcoming interest rate hike.

Finally, in the absence of any notable USD data, the direction of the US dollar is likely to be determined by market sentiment, potentially leading to the ‘greenback’ weakening amid a prevailing risk-off mood.
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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