US dollar nosedives on dovish Fed

The US dollar plummeted to fresh multi-month lows on Friday following a dovish speech by Federal Reserve Chair Jerome Powell.

Meanwhile the pound is mostly flat this morning, with GBP/EUR wavering at €1.1182 and GBP/USD stable at $1.3200. GBP/CAD is rangebound at CA$1.7791, while GBP/AUD and GBP/NZD hold steady at AU$1.9480 and NZ$2.1241 respectively.

Looking ahead, could a souring market mood see USD recoup some of its recent losses?

What’s been happening?

The US dollar plummeted to fresh lows on Friday afternoon following commentary by Fed Chair Powell at the bank’s annual Jackson Hole Symposium.

As expected, Powell signalled that the Fed is ready to alter monetary policy, stating that ‘the time has come to adjust rates’.

Following this, solidified September rate cut bets saw USD tumble against its rivals, as an improving market sentiment further pressured the safe-haven ‘greenback’.

Meanwhile, GBP rose to a fresh one-year high against its US counterpart amid speculation that the Bank of England (BoE) would deliver a less aggressive policy-easing cycle than that of other major central banks in the coming months.

Supporting this speculation was commentary from BoE Governor Andrew Bailey, who stated that policymakers remain ‘cautious’.

Looking to the Eurozone, stubborn consumer inflation expectations lent EUR support, while the common currency also strengthened due to its negative trading relationship with a weakened USD.

What’s coming up?

Turning to today’s session, the euro may struggle to garner investor support following some downbeat German data.

A worse-than-forecast German GfK consumer confidence survey leaves the euro largely subdued. The consumer climate indicator unexpectedly dipped to -22 in September, marking the lowest reading since May. Economists cited ongoing concerns about job security and a weak economic outlook as the primary downward drivers in German morale.

Underpinning these concerns was the latest German GDP data, which confirmed that the Eurozone’s largest economy shrank by 0.1% in the second quarter.

Meanwhile, the Confederation of British Industry’s (CBI) distributive trades report is due for release later this morning. Should the UK’s monthly retail sales balance remain in negative territory this month, concerns of weak consumer spending may weigh on the pound.

In the US, a lack of notable economic data could see USD exposed to global risk dynamics, with any downbeat trade likely to see the safe-haven ‘greenback’ strengthen.