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US dollar surges on Fed rate hike expectations

currency-newsUS dollar surges on Fed rate hike expectations
The US dollar rallied again on Thursday, underpinned by aggressive Federal Reserve rate hike expectations.

Meanwhile, the pound is off to a muted start so far this morning, with GBP/EUR subdued at €1.1788 and GBP/USD dipping to $1.1814. GBP/CAD is rangebound at C$1.5508, while GBP/AUD and GBP/NZD hold steady at AU$1.7549 and NZ$1.9269, respectively.

Looking ahead, will a rebound in US retail sales help propel the US dollar higher again this afternoon?

What’s been happening?

The US dollar continued its relentless march higher during yesterday’s session. USD demand was primarily driven by Federal Reserve rate hike bets. Investors are now pricing in an 80% chance of the Fed hiking rates by 100bps later this month.

This uptick was reinforced by the latest US PPI release, as producer prices accelerated at a faster-than-expected pace last month.

Meanwhile, the EUR/USD exchange rate fell below parity again on Thursday. The euro softening after the European Commission slashed its Eurozone growth forecasts for 2022 and 2023 as it warned of the economic shocks of the war in Ukraine.

At the same time, the pound was left subdued yesterday, with the risk-off mood and ongoing UK political uncertainty weakening Sterling sentiment.

What’s coming up?

The publication of the latest US retail sales figures may help the US dollar to extend its bullish run today.

Economists forecast US sales growth will have rebounded from –0.3% to 0.8% in June, bolstering the outlook for US economic growth at the end of the second quarter and likely reflecting positively on USD exchange rates.

On the other hand, the University of Michigan’s consumer sentiment index could act as a headwind for the US dollar, as July’s release is forecast to report household morale slumped to a new record low.

In the meantime, the threat of a new political crisis in Italy after the resignation of Italian Prime Minister Mario Draghi could infuse volatility into the euro today.

Finally in the absence of any notable domestic data, will UK political developments continue to weigh on Sterling sentiment?
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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