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US dollar soars as Powell says US economy can withstand higher rates

currency-newsUS dollar soars as Powell says US economy can withstand higher rates
The US dollar rallied on Thursday on the back of comments from Federal Reserve Chair Jerome Powell.

Meanwhile, the pound is stable this morning, with GBP/EUR flat at €1.1607 and GBP/USD buoyed at $1.2141. GBP/AUD is holding steady at AU$1.7640, while GBP/CAD and GBP/NZD climb to C$1.5667 and NZ$1.9536, respectively.

Coming up the release of the latest US PCE price index will be in the spotlight today. Will a slowing of US inflation reverse some of the US dollar’s recent gains?

What’s been happening?

The US dollar strengthened yesterday, soaring on the back of comments from Fed Chair Jerome Powell.

Speaking at the European Central Bank’s (ECB) Forum on Monetary Policy, Powell claimed the US economy can withstand more monetary tightening.

USD investors also welcomed his comments suggesting the Fed will prioritise bringing inflation back under control, even at the expense of US economic growth.

European Central Bank (ECB) President Christine Lagarde also struck a hawkish tone as she told the panel ‘we are unlikely to go back to an environment of low inflation.’

However, this was not enough to offset the pressure stemming from Germany’s consumer price index, which reported a surprise deceleration of inflation this month.

Meanwhile the pound came off the worst following yesterday’s panel of central bankers. Bank of England (BoE) Governor Andrew Bailey struck a gloomier note than his peers as he warned about the economic shock caused by a fall in real incomes.

What’s coming up?

Today’s session was kicked off by the publication of the latest UK GDP release.

The finalised figures confirmed the UK economy expanded by 0.8% in the first quarter, lending some modest support to the pound.

Also released earlier this morning was Germany’s latest retail sales print. The figures buoying the euro after reporting sales growth rebounded in May.

This upside in the single currency could be reinforced later in the session with the publication of the Eurozone’s unemployment figures, if the bloc’s jobless rate fell to a new record low last month.

For USD investors the focus today is likely to be on the publication of the Fed’s preferred indicator for inflation, the core PCE price index. This could see the US dollar falter as an expected slowdown in underlying inflation in May could dent Fed rate hike bets.  
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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