Home Daily Commentaries US dollar surges to 6 week high

US dollar surges to 6 week high

Daily Currency Update

The US dollar is experiencing a rise in value with the dollar index (DXY) trading above 103.00, a level not seen since early April, driven by ongoing risk aversion. Furthermore, the rebound in US yields is also providing support to the dollar. Yesterday's bipartisan discussions provided a hint of optimism regarding the resolution of the debt ceiling problem, despite the prevailing risk aversion among investors. Although policymakers are consistently maintaining a hawkish stance, especially in relation to the persistently high inflation, expectations that the Federal will halt interest rate hikes at the June event remain unchanged. Raphael Bostic, Atlanta Federal Reserve president, noted that the Fed is expected to face considerable pressure in the event of increased unemployment and ongoing inflation.

Key Movers

The euro maintained its seller-dominant pattern causing the EUR/USD pair to fall to fresh lows near the 1.0830 level. The enduring risk aversion of investors remains a key factor supporting their preference for the greenback, which results in the EUR/USD pair remaining defensive for the second consecutive week. In line with the negative sentiment surrounding the euro, European Central Bank (ECB) board member, Pablo Hernández de Cos, indicated that the bank's rate hikes are nearing their end. However, his views stand in contrast to that of several colleagues who expressed a preference for maintaining a tightening bias for the June and July meetings. Data released today for the eurozone showed that inflation remains resilient, as the recently finalized data for April reveals a modest uptick in the headline figure compared to the same period last year. Core inflation decreased marginally from 5.7% to 5.6%, indicating minimal improvement. Month-over-month inflation however showed a positive trend, with a 0.6% increase in prices compared to the previous 0.9%, suggesting a potential slowdown in the rate of price escalation.

After hitting a new multi-week low near 1.2420 earlier in the day, GBP/USD gained momentum and surpassed 1.2450. However, the prevailing cautious sentiment in the market is bolstering the USD and curbing the pair's potential upside during the early American session. Speaking today at the British Chambers of Commerce Global Annual Conference, Bank of England (BoE) Governor, Andrew Bailey, acknowledged that if price pressures were to persist, additional policy tightening might become necessary. However, he also mentioned that there were indications of a slight loosening in the labor market. According to data from Refinitiv, traders have priced in a two-thirds probability of a 25 basis point hike in June. Conversely, there is a rough one-in-three likelihood that the BoE will maintain rates at their current level.

USD/CAD cannot take full advantage of its minor gains earlier today and encounters new selling pressure around the 1.3535 area. Spot prices declined to a new daily low near 1.3470 during the North American session. The downside seems limited due to the robust buying of the US dollar, which is lending support to the pair. The CAD is supported by buying interest in oil which trades at around 71.11 a barrel coupled with Canadian consumer inflation figures that exceeded expectations. These factors have resulted in selling pressure for the currency pair and the 50 basis point drop during the day.

Expected Ranges

  • EUR/USD: 1.0816 - 1.0873 ▼
  • GBP/USD: 1.2424 - 1.2496 ▲
  • AUD/USD: 0.6633 - 0.6669 ▲
  • USD/CAD: 1.3449 - 1.3524 ▼