US dollar strengthens on hawkish FOMC minutes

The US dollar rallied on Wednesday as investors digested some hawkish minutes from the Federal Reserve’s latest policy meeting.

Meanwhile the pound is struggling to find momentum so far this morning, with GBP/EUR flat at €1.1355 and GBP/USD steady at $1.2046. GBP/CAD is rangebound at CA$1.6293, while GBP/AUD and GBP/NZD dip to AU$1.7641 and NZ$1.9309, respectively.

Looking ahead, will some hawkish comments from a Bank of England (BoE) policymaker propel Sterling higher this morning.

What’s been happening?

The US dollar initially traded with modest gains yesterday as a cautious mood prevailed.

The publication of the minutes from the Federal Reserve’s February policy meeting then propelled USD exchange rates sharply higher in the evening. The minutes highlighted policymakers’ desire to bring inflation back within the bank’s target range by continuing to raise interest rates.

Meanwhile the pound was subdued on Tuesday. While expectations for additional interest rate hike from the Bank of England (BoE) helped to underpin GBP demand, this was not quite enough to counteract the profit taking following Sterling’s sharp rise earlier in the week.

At the same time, the euro was muted yesterday following Germany’s latest Ifo Business climate index as it printed slightly below forecast.

What’s coming up?

Today’s European trading session will be kicked off by a speech from BoE policymaker Catherine Mann.

Mann is one of the BoE’s more hawkish members so GBP investors will be expecting her to talk up the prospects of the bank continuing to raise interest rates.

Any resulting upside in the pound may then be reinforced by the publication of the Confederation of British Industry’s (CBI) distributive trades index, if retail activity shows an improvement this month.

Also coming up this morning is the publication of the Eurozone’s latest CPI release. January’s finalised figures are expected to confirm inflation slowed sharply, likely limiting the euro’s upside potential.

Later this afternoon the US will publish its latest GDP estimate. Barring a major diversion from the initial estimate, these are set to confirm a solid expansion of growth in the fourth quarter, potentially lending support to the US dollar.