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US dollar rallies as Powell hints at accelerating the Fed’s tapering plans

currency-newsUS dollar rallies as Powell hints at accelerating the Fed’s tapering plans
The US dollar traded in a wide range yesterday, initially stumbling amid Omicron fears, before rallying sharply after Federal Reserve Chair Jerome Powell’s tapering comments.

Meanwhile, the pound is stuck in a narrow range so far this morning, with GBP/EUR stable at €1.1743 and GBP/USD buoyed at $1.3321. GBP/CAD is rangebound at C$1.6991, while GBP/AUD and GBP/NZD hold steady at AU$1.8625 and NZ$1.9445, respectively.

Coming up, with Omicron Covid concerns continuing to dominate headlines, could we be in for more volatility today?

What’s been happening?

The US dollar initially fell back on Tuesday, as uncertainty over the new Omicron Covid variant saw USD investors continue to reprice their expectations for the next rate hike from the Federal Reserve.

However, the ‘greenback’ mounted a convincing recovery towards the end of the European trading session after Fed Chair Jerome Powell indicated the US central bank may wind down its stimulus programme earlier than previously thought.

Due to its strong negative correlation with the US dollar, this reversed some of the euro’s earlier gains following a sharp surge in Eurozone inflation, which stoked expectations the European Central Bank (ECB) might need to hike interest rates earlier than 2023.

At the same time, the pound struck a fresh 2021 low against the US dollar yesterday, as new Covid restrictions came into force in the UK and GBP investors continued to express concern over the lack of progress in Brexit talks.

What’s coming up?

Looking ahead, is likely that trading dynamics could continue to be influenced by Omicron headlines today, potentially infusing more volatility into currency markets.

Elsewhere the spotlight will likely be on the publication of the latest US ISM manufacturing PMI later this afternoon. November's release is expected to report the pace of growth in the US factory sector accelerated, potentially going some way toward reversing the US dollar’s recent losses.

In the meantime, EUR investors will be focused on the release of the Eurozone’s own PMI release. If the finalised figures print above expectations the euro could strengthen.

Meanwhile, an upbeat UK manufacturing PMI may have limited impact on the pound, amidst ongoing Brexit uncertainty.
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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