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US dollar extends rally in bearish trade ahead of Fed interest rate decision

currency-newsUS dollar extends rally in bearish trade ahead of Fed interest rate decision
The US dollar pressed higher again on Tuesday, with the currency continuing to catch bids amidst souring market sentiment.

Meanwhile, the pound is trading in a narrow range so far this morning, with GBP/EUR stable at €1.1958 and GBP/USD flat at $1.3503. GBP/CAD is subdued at C$1.7003, while GBP/AUD and GBP/NZD hold steady at AU$1.8868 and NZ$2.0192, respectively.

In the spotlight today will be the Federal Reserve’s latest interest rate decision. Will some hawkish forward guidance propel the US dollar higher?


What’s been happening?

The US dollar remained well supported yesterday as another slump in equity markets spooked investors and bolstered demand for the safe-haven currency.

This came ahead of the Federal Reserve’s latest monetary policy meeting, with investors growing concerned the Fed’s move toward tightening its monetary policy could impact the recovery in global growth.

As a result of the negative correlation between the pairing, the US dollar’s strength continued to supress demand for the euro yesterday, leaving EUR exchange rates to weaken in spite of Germany’s IFO business climate index printing above expectations in January.

The pound, meanwhile, fluctuated on Tuesday in response to the latest UK political headlines.

This initially saw Sterling retreat following reports of a birthday party held for Boris Johnson during the 2020 lockdown, before bouncing back as it was suggested the Sue Gray inquiry into the ongoing ‘partygate’ scandal might be delayed, potentially offering the PM a temporary reprieve.


What’s coming up?

Centre stage today will undoubtedly be the Fed’s first interest rate decision of 2022.

The Fed is widely expected to leave interest rates on hold this month, leaving the focus to primarily be on the US central bank’s outlook for the rest of the year.

USD investors are increasingly betting the Fed will pursue up to four interest rate hikes this year, and should the bank’s forward guidance appear to support this the US dollar could soar.

In the meantime, the focus for GBP investors is likely to remain on UK politics. Contrary to reports yesterday, the Sue Gray report into alleged lockdown breaches at Downing Street is expected to be published later today. Expect the pound to fall if the report is seen as putting more pressure on Boris Johnson to resign.

In the absence of any notable Eurozone data releases, the euro may be primarily influenced by Italian politics today, with the single currency potentially dipping amidst worries the country could be headed towards a snap election if PM Mario Draghi takes the role of president.
Currencies Direct

Currencies Direct

Currencies Direct is one of Europe's leading non-bank providers of currency exchange and international payment services. Since we were formed in 1996, we've maintained our focus on providing innovative foreign exchange and international currency transfer services to corporations of all sizes, online sellers and private individuals. We have also expanded our services to provide dynamic and pioneering "business to business" solutions to help companies, tier 2/3 banks and other non-bank financial institutions to process their international payments. Our headquarters are in the City of London (United Kingdom) and we have operations in continental Europe, Africa, Asia, and the United States. Currencies Direct is jointly owned by private equity firms Palamon Capital Partners and Corsair Capital.

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