Home Daily Commentaries USD near 20-year highs after Fed decision

USD near 20-year highs after Fed decision

Daily Currency Update

After demand for the US dollar fell after Wednesday's Federal Reserve monetary decision to increase the benchmark rate by 50 basis points, we saw a complete reversal on Thursday as the dollar made an incredibly strong recovery to a 20-year high.

The Canadian dollar lost ground to its US counterpart on Friday following data that showed Canadian employment was well above pre-pandemic levels. Canadian jobs gains stalled, while the unemployment rate hit a new record low. The economy added 15,300 jobs in April, which was well below of the 40,000 gain that economists expected. The unemployment rate fell to 5.2% in April, the lowest in data going back to 1976. USDCAD was trading at 1.2890 at the time of writing.

Key Movers

As expected yesterday the Bank of England decided to raise the interest rate in the UK by 25 basis points, taking the UK base rate to its highest level in 13 years from 0.75% to 1%. Despite a hike that would usually be considered good for currency, the pound had its worst single day against the USD since September 2020 with a back drop of increased fears around stagflation. GBPUSD was little changed on Friday trading at 1.2356 at the time of writing.

From the Eurozone, European Central Bank member Robert Holzmann stated that discussions around rate hikes will commence in the ECB meeting scheduled for June. Many believe that the markets are pricing in up to 90 basis points worth of hikes from the ECB by the end of the year,  which is maybe when we'll see the euro gain some ground back on its peers. For now though EURUSD continues to trade around the 1.05 handle.

Volatility remained a major theme in markets on Friday as investors digested mixed US jobs data and rising US yields after the central bank's decision on Wednesday. Nonfarm payrolls increased by 428,000 in April. The unemployment rate stayed at 3.6% as the labor force participation rate declined and broader measures of unemployment rose. Average hourly earnings fell short of estimates on month-to-month basis in April but was up 5.5% from a year before. This dynamic could put pressure on employers to boost wages to help with labor shortages, but this could complicate the Federal Reserve's plan to curb inflation as they try to bring labor demand in line with supply. The US Dollar Index was sitting at 103.43 at the time of writing.

Expected Ranges

  • EUR/CAD: 1.3489 - 1.3636 ▲
  • GBP/CAD: 1.5796 - 1.5928 ▲
  • AUD/CAD: 0.9088 - 0.9152 ▲
  • USD/CAD: 1.282 - 1.2891 ▲