Home Daily Commentaries USD weakens as Federal Reserve keep rates unchanged

USD weakens as Federal Reserve keep rates unchanged

Daily Currency Update

The Euro gained momentum against the U.S. Dollar on Wednesday despite the Eurozone data raising recession fears. Whilst the Federal Reserve decided to keep the federal funds rate unchanged at 5.25–5.50% as the market was expecting. Fed Chair Jerome Powell said during the press conference that the rise in long end yields needs to be persistent and driven by higher-term premiums to influence monetary policy. Adding that the current monetary policy is already restrictive. There is still room for another rate hike however the stance of the Fed currently is less in favour. The US dollar dropped after the meeting while investors could be seen to believe that the rate hiking cycle is already over in the data released from the US showed the US Private sector payroll growth increased modestly in October however it missed expectations. The figure on Wednesday showed a rise by 113,000 from 89,000 in September, below the market anticipated trading of 150k. Whereas the JOLTS jobs opening data unexpectedly rose to 9.553M, better than the expectation of 9.25M. The ISM Manufacturing PMI registered the lowest reading since July, dropping to 46.7 in October. 

 

The European Central Bank decided to hold interest rates unchanged last week and the central bank is anticipated to start cutting interest rates in Q2 of 2024. With disinflationary pressures reflecting poor GDP growth, the PMI data has also highlighted concerns in the euro area pointing to heightened risks of recession. The Eurozone Gross Domestic Product for the third quarter came in at -0.1% quarter on quarter from a 0.1% expansion in the prior release. Whereas annually the growth numbers grew by 0.1% against a 0.5% previous reading. Both annually and quarterly readings came in lower than the market was expecting.

Key Movers

A clearer direction for EUR/USD could be revealed. Investors will watch closely the speech from the ECB’s Lane for fresh guidance. The Eurozone will also reveal the German Unemployment rate, Spain, and Italy’s HCOB Manufacturing PMI that is due to be released on Thursday. US weekly Initial Jobless Claims will be relevant for investors to watch out for, as will the US Nonfarm Payrolls data on Friday, which is estimated to add 180K jobs in October.

Expected Ranges

  • GBP/USD: 1.2156 - 1.2196 ▼
  • GBP/EUR: 1.1473 - 1.1508 ▼
  • GBP/AUD: 1.8918 - 1.9162 ▼
  • EUR/USD: 1.0588 - 1.0608 ▲