US dollar nosedives following Fed’s ‘dovish’ hike

The US dollar plummeted yesterday in response to a ‘dovish’ 75bps interest rate hike from the Federal Reserve.

Meanwhile, the pound is mostly rangebound at the start of today’s session, with GBP/EUR flat at €1.1923 and GBP/USD stable at $1.2173. GBP/CAD and GBP/AUD are holding steady at C$1.5599 and AU$1.7387, respectively, while GBP/NZD slips to NZ$1.9381.

The US dollar could rebound today if the latest US GDP figures report a rebound in growth in the second quarter.

What’s been happening?

The US dollar ticked lower through the European session on Wednesday.

Demand for the ‘greenback’ was limited ahead of the Fed’s interest rate decision. A modest uptick in market risk appetite offsetting the publication of a stronger-than-expected US durable goods orders print.

The USD selloff accelerated following the Fed rate decision. While the US central bank announced another 75bps hike. The US dollar sank as the cautious tone struck by Fed chair Jerome Powell in his accompanying policy statement caused USD investors to scale back future rate hike bets.

The euro also struggled in European trade yesterday, with the single currency being undermined as Russia’s Gazprom further reduced gas exports to Germany through the Nord Stream pipeline.

The latest reduction in gas flows sparked warnings that Europe will need to ration gas supplies over the winter, likely tipping the Eurozone into a recession in the process.

At the same time, the pound was left to trade sideways on Wednesday. While GBP investors grew increasingly confident that the Bank of England (BoE) will pursue a 50bps interest rate hike next week, the latest rail strikes revived concerns over the UK’s ‘summer of discontent’.

What’s coming up?

In the spotlight today will be the publication of the latest US GDP release.

The preliminary figures for the second quarter are expected to report US economic growth rebounded in the three months to June. Potentially reviving demand for the US dollar later this afternoon.

For EUR investors the focus will be on Germany’s consumer price index, where another slowdown in German inflation this month could drag on the euro.

In the meantime, EUR exchange rates could also be undermined by the latest Eurozone economic sentiment index as economists predict another drop in sentiment this month.

Meanwhile, any movement in the pound may remain limited as UK political uncertainty continues to hang over the currency.