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Weekly roundup: US dollar rocked by Fed rate speculation

currency-newsWeekly roundup: US dollar rocked by Fed rate speculation
The US dollar traded in a wide range through last week’s session on shifting expectations for the Federal Reserve to tighten monetary policy sooner than previously thought.

News that President Joe Biden nominated current Fed chair Jerome Powell for a second term boosted USD exchange rates at the start of the week.

The continuity and more hawkish tilt that Powell offers instead of vice chair pick Lael Brainard bolstered expectations for an earlier rate hike from the US central bank.

A slew of US economic data released on Wednesday ahead of markets closing for Thanksgiving gave the US dollar a sharp boost on rising Fed rate hike expectations.

Federal Open Market Committee (FOMC) minutes from its latest policy meeting revealed that increasing numbers of policymakers believe the Fed should be prepared to accelerate tapering its bond-buying programme if inflation runs too hot, and be ready to raise interest rates in 2022. 

However, the US dollar slumped at the end of the week following news that a highly-mutated variant of coronavirus had been identified in southern Africa.

Reports that the variant is highly transmissible and may make vaccines ineffective rattled global markets and caused investors to reduce bets for a Fed rate hike, inflicting heavy losses on the ‘Greenback’.

So far this week, developments surrounding the Omicron Covid variant have continued to influence USD trading dynamics.

Elsewhere the US dollar is likely to be driven by the latest US nonfarm payroll release at the end of the week. Economists are forecasting another bumper reading exceeding 500,000 in November, which is likely to strengthen USD exchange rates.

In the meantime, speeches from Jerome Powell and Treasury Secretary Janet Yellen may also boost the ‘greenback’ if they signal the Fed might still be open to raising interest rates, in spite of the potential threat posed by omicron.
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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