Upbeat market mood drags on the US dollar
The currency market was driven by improving market sentiment on Thursday, leaving the US dollar to weaken as investors flocked to its peers.
The US dollar took a beating at the end of last week’s session, driven lower by expectations for additional rate cuts from the Federal Reserve.
The pound, meanwhile, is having a fairly strong start to the week. While GBP/EUR has slipped to €1.1453, GBP/USD has surged to $1.3163. GBP/CAD has skyrocketed to C$1.7964, and GBP/AUD and GBP/NZD have soared to AU$2.0105 and NZ$2.0995 respectively.
Coming up this week, the pound could come under pressure if the UK’s Budget fails to meet expectations.
What’s been happening?
The US dollar entered freefall on Friday, retreating to an eight-month low against the euro as the ‘greenback’ was punished by rising bets that the Federal Reserve will cut rates again this month.
Last week saw the Fed shock markets by announcing an emergency rate cut of 50 basis points, in an attempt to shore up markets and limit the impact of the coronavirus on the US economy.
However, USD investors feel the Fed may only just be getting started, with the US dollar plunging as markets price in a 80% chance of policymakers cutting rates by a further 75 basis points when the bank holds its policy meeting later this month.
This slump in the US dollar proved particularly beneficial for the euro, which jumped at the end of last week as it was also supported by bumper factory order figures from Germany.
Meanwhile, the pound held steady on Friday as a hawkish Bank of England (BoE) helped to offset lingering Brexit uncertainty.
What’s coming up?
Looking ahead, we’re expecting extreme volatility today as a collapse in oil prices rocks the currency market.
Other events in the spotlight will include the publication of the UK Budget, with GBP investors hoping that the UK government will commit to a large increase in spending.
For EUR investors the focus at the start of the week will be on Germany, with the publication of some strong industrial production figures in January likely to support the euro today.
In the US, speculation of a Fed rate cut may keep pressure on the US dollar this week, especially if US coronavirus cases continue to rise at an alarming pace.
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)
