Home Daily Commentaries The US dollar falls against the Euro and G10 currencies following Fed Brainard’s comments

The US dollar falls against the Euro and G10 currencies following Fed Brainard’s comments

Wednesday 7 September, 2022

Daily Currency Update

Fed Vice Chair President Lael Brainard said the Fed would raise interest rates and continue to go to restrictive levels for "as long as it takes" to stop inflation; however, she added that risk would become more two-sided "at some point." Her last comment triggered a fall and profit-taking of the US dollar. The Dixie (DXY, USD dollar index) has fallen 0.3% so far. Brainard said at a conference hosted by The Clearing House and Bank Policy Institute in New York that, "Monetary policy will need to be restrictive for some time to provide confidence that inflation is moving down to target." The Bank of Canada has the rate at 3.25% and the Fed at 2.5%; however, the Fed has its next monetary policy meeting on September 21st. The expectation is to have a 50 bps increase, bringing the Fed rate to 3% (25 bps less than the Bank of Canada by the end of September). The EURUSD pair increased by around 0.9%, getting close to parity again at 0.9990.

Key Movers

The Bank of Canada raised its official rates by 75 basis points to 3.25%, as expected. Furthermore, the Bank of Canada signaled more hikes are needed to bring inflation back to the 2% target. It might hike its rate by 25 to 50 bps by October due to ongoing inflation and a tight labor market. The Pound fell to its lowest level against the US dollar since 1985, meaning that market participants are not convinced by the new Prime Minister Liz Truss's new government. Furthermore, the energy-price package might not help to stop sterling's decline (GBPUSD is down ~15% this year). The Japanese yen is at levels not seen since June of 1998, when the Bank of Japan and the Fed jointly intervened to slow down the pace of depreciation.

Expected Ranges

  • EUR/USD: 0.9878 - 1.000 ▲
  • GBP/USD: 1.1409 - 1.1526 ▲
  • AUD/USD: 0.6699 - 0.6764 ▲
  • USD/CAD: 1.3130 - 1.3205 ▼