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US dollar rallies on Fed rate hike speculation

currency-newsUS dollar rallies on Fed rate hike speculation
The US dollar firmed against the majority of its peers on Tuesday, bolstered by rising bets the Federal Reserve will hike interest rates in the near-term.

Meanwhile, the pound is mostly rangebound so far this morning, with GBP/EUR muted at €1.1728 and GBP/USD flat at $1.3246. GBP/CAD is stable at C$1.6754, while GBP/AUD and GBP/NZD hold steady at AU$1.8575 and NZ$1.9510, respectively.

Looking ahead, will some dovish comments by European Central Bank (ECB) President Christine Lagarde, push the euro lower this morning?

What’s been happening?

The US dollar rose in tandem with US Treasury yields yesterday, amidst growing expectations that the Federal Reserve will raise interest rates sooner-rather-than-later.

This comes as analysts expect inflation in the US to continue to accelerate, and that the Fed will need to act soon if it is to keep it in check.

The euro, meanwhile, was pressured by both a stronger US dollar as well as the latest German ZEW survey, which reported economic sentiment in the Eurozone’s largest economy deteriorated again in December.

This offset the release a stronger-than-expected industrial production reading from Germany earlier in the session.

At the same time, the pound struggled to attract support on Tuesday, following the confirmation of ‘community transmission’ of the Omicron Covid variant in several regions of the UK.

What’s coming up?

Today’s session will be kicked off by a speech from European Central Bank (ECB) President Christine Lagarde.

This could see the euro get off on the wrong foot this morning, should Lagarde continue to reinforce the ECB’s current dovish bias and reiterate the bank’s belief that the current spike in Eurozone inflation is temporary.

The focus for USD investors may be on the publication of the latest Job Openings and Labor Turnover Survey (JOLTs). October's figures are expected to report there remained over 10.4 million job openings, indicating that US labour demand remains strong.

Meanwhile, in the continued absence of any GBP data of note, the pound may remain sensitive to UK Covid developments, with the pound potentially weakening if Omicron cases continue to rise.
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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