US dollar extends downward correction
Tuesday 24 May, 2022
Daily Currency UpdateThe US dollar extended last week's downward correction following PMI data and comments from European Central Bank President Christine Lagarde.
Last week, concerns surrounding the US growth outlook forced investors to review expectations for US Federal Reserve monetary policy while this week's positive shift in risk sentiment drove investors away from haven assets. Data released today showed that the US economy lost momentum in May. The flash US services PMI fell to 53.5 in May from 55.6 in April, a four-month low and below the 55.0 forecast by economists. The Flash US manufacturing PMI decreased to 57.5 in May from 59.2 in April, but in line with economists' estimates.
The US Dollar Index was down 0.28% trading at 101.79 at the time of writing.
Key MoversThe ECB's Christine Lagarde said on Tuesday that she saw the central bank's deposit rate at zero or “slightly above” by the end of September, implying a potential interest rate increase of at least 50 basis points from its current level, and that there could be further raises if policymakers saw inflation stabilizing at 2%. The market is now pricing for a potential 25-basis-point interest rate increase in July, followed by another 25 basis points in September. Analysts are also suggesting that there could be follow-up interest rate increases on October 27 and December 15, which would take the deposit rate to 0.5% by year-end. This news had a positive impact on the euro and it experienced some gains against the US dollar and the pound. EURUSD was up 0.41% trading at 1.07313 at the time of writing.
The pound struggled against the dollar following data that showed a slowdown in business activity, adding to growing concerns that the UK could be headed for a recession later this year. UK manufacturing dropped to 54.6 in May versus an expected 55.1, while the flash services PMI fell to 51.8 in May versus an expected 57.3. GBPUSD was down 0.44% at around 1.2530 at the time of writing.
- EUR/USD: 1.0663 - 1.0744 ▲
- GBP/USD: 1.2475 - 1.2593 ▼
- AUD/USD: 0.706 - 0.7111 ▼
- USD/CAD: 1.2767 - 1.287 ▲