US dollar retreats on weakening Fed rate hike bets

Philip McHugh October 24th 2023 - 2 minute read

The US dollar stumbled on Monday as it was undermined by a weakening of Federal Reserve interest rate expectations.

Meanwhile, trade in the pound is a little mixed at the start of today’s session, with GBP/EUR buoyed at €1.1501 and GBP/USD steady at $1.2268. GBP/CAD is rangebound at CA$1.6773, while GBP/AUD has slid to AU$1.9248 and GBP/NZD is subdued at NZ$2.0910.

Looking ahead, the latest UK and Eurozone PMIs are in the spotlight today. Could these inject some volatility into GBP and EUR exchange rates?

What’s been happening?

The US dollar got off to an underwhelming start this week. The ‘greenback’ initially held its ground as a cautious market mood placed a floor under the safe-haven currency.

However, USD exchange rates subsequently retreated amid a marked rise in US Treasury yields, which further weakened Federal Reserve interest rate expectations.

The euro’s negative correlation with the US dollar helped to strengthen EUR exchange rates on Monday, although these gains were capped amid a reluctance to reposition ahead of the European Central Bank’s (ECB) upcoming interest rate decision.

Meanwhile, in the absence of any market moving data the pound struggled to find direction during yesterday’s European session.

What’s coming up?

Today’s session was kicked off by the publication of the UK’s latest unemployment statistics.

August’s delayed figures reported the jobless rate remained mostly stable, which appears to have lent some support to the pound this morning.

Also set to influence GBP exchange rates this morning will be the UK’s PMIs. October’s preliminary indexes are expected to report private sector growth continues to contract, albeit at a slower pace than in September. Will this also help to underpin Sterling?

The Eurozone’s own PMIs are forecast to report that the bloc’s manufacturing and services sectors remain firmly in contraction territory, which could act as a headwind for the euro this morning.

Finally, this afternoon will see the publication of the latest US S&P PMIs. While not as influential as the ISM releases, they could nonetheless drag on USD exchange rates if they report the US private sector contracted this month.

Written by
Philip McHugh

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