US dollar slumps on dovish Fed Powell comments

Philip McHugh May 22nd 2023 - 2 minute read

The US dollar closed last week on a sour note, following comments from Federal Reserve Chair Jerome Powell

Meanwhile, trade in the pound is mixed so far this morning, with GBP/EUR subdued at €1.1500 and GBP/USD dipping to $1.2419. GBP/CAD is muted at CA$1.6776, while GBP/AUD and GBP/NZD hold steady at AU$1.8728 and NZ$1.9823, respectively.

Looking ahead, will another improvement in Eurozone consumer confidence help to lift the euro today?

What’s been happening?

The US dollar got off to a poor start on Friday, with the currency appearing to run afoul of some profit taking following its bullish run earlier in the week.

This selloff then gathered pace following a dovish speech by Federal Reserve Chair Jerome Powell.

Powell suggested interest rates aren’t likely to rise as high as previously thought due to the recent turbulence in the US banking sector. These comments caused the odds for a June rate hike to plummet and pulled the US dollar down along with it.

The euro, meanwhile, strengthened on the back of remarks from European Central Bank (ECB) President Christine Lagarde.

Lagarde declared the ‘ECB will be courageous to take the decisions needed to bring inflation back to 2%’ stoking expectations for further interest rate hikes from the bank.

At the same time, the pound firmed at the end of last week as the increasingly risk-sensitive currency benefitted from an improving market mood.

What’s coming up?

Turning to this week, the focus at the start of the session will be on the release of the Eurozone’s latest consumer confidence figures.

Economists forecast consumer sentiment will have continued to improve this month. But will only a modest rise in confidence be enough to strengthen the euro?

On the other side of the Atlantic, USD investors will look to a series of speeches by Fed policymakers for fresh impetus today. Could a hawkish consensus help to push the US dollar higher?

Meanwhile, a sparse UK data calendar could see the pound struggle to find momentum at the start of this week.

Written by
Philip McHugh

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