Weekly Roundup: US dollar undermined by fading Fed rate hike expectations

The US dollar spent the first half of last week on the back foot. The drop in USD came as investors repriced their expectations for future Federal Reserve interest rate hikes in the wake of reports suggesting the US central bank could slow the pace of its tightening cycle.

USD exchange rates were able to recover some ground following the publication of the latest US GDP figures on Thursday, after they reported a larger-than-expected rebound in US economic growth in the third quarter.

However, the US dollar then ran into fresh selling pressure at the end of the week. A weaker-than-expected core PCE price index undermined the ‘greenback’ as it further dented expectations for future Fed interest rate hikes.

Centre stage this week will be the Fed’s latest interest rate decision. The US central bank is widely expected to deliver another 75bps rate hike, but with this largely priced in the real focus will be on the Fed’s forward guidance.

If the Fed confirm plans to slow the pace of future hikes the US dollar could weaken.

Also of note to USD investors will be the latest US non farm payroll release. Where a slowdown in employment growth this month could weigh on USD sentiment.