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US dollar losses capped by hawkish Fed rate hike

currency-newsUS dollar losses capped by hawkish Fed rate hike
The US dollar trended lower on Wednesday as a result of an upbeat market mood, although these losses were tempered by a hawkish interest rate hike from the Federal Reserve.

Meanwhile, the pound is stable at the start of today’s session, with GBP/EUR flat at €1.1932 and GBP/USD buoyed at $1.3171. GBP/CAD is rangebound at C$1.6696, while GBP/AUD and GBP/NZD hold steady at AU$1.8009 and NZ$1.9246, respectively.

Looking ahead, the Bank of England (BoE) looks set to raise interest rates today. Could this help to underpin GBP exchange rates?

What’s been happening?

The US dollar initially stumbled yesterday, with the currency trading with modest losses during the European session in response to a prevailing risk-on mood.

Extending the downside in the ‘greenback’ was the publication of some lacklustre US retail sales figures.
However, the US dollar’s losses were cushioned by the Federal Reserve’s latest interest rate decision, which saw the Fed raise rates by 25 basis points as expected, as well as signal plans for further rate hikes in the months to come.

Hopes for a ceasefire in the war between Russia and Ukraine helped to underpin the euro during Wednesday’s European trading session, with the Financial Times reporting ‘significant progress’ had been made in peace talks.

The pound also benefitted from hopes for a negotiated end to the conflict in Ukraine, although its gains were limited by GBP investors reluctance to make any aggressive bets ahead of the Bank of England’s impending interest rate decision.

What’s coming up?

In the spotlight today will unquestionably be the BoE’s interest rate decision.

The BoE is expected to deliver its third consecutive interest rate this afternoon. Raising rates from 0.5% to 0.75% as the bank concludes its March policy meeting.

However with the rate hike largely priced in by GBP investors a lot will be riding on the BoE’s forward guidance.
Should the BoE signal plans to continue to increase rates in an effort to control inflation then it’s likely we could see the pound appreciate.

In the meantime, a speech by European Central Bank (ECB) Governor Christine Lagarde could exert pressure on the euro if she continues to rebuff suggestions the ECB could hike interest rates this year.

Across the pond we might see the US dollar face some headwinds if the latest US industrial production figures underwhelm.
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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