Home Daily Commentaries USD drops as Powell signals slower pace of rate hikes

USD drops as Powell signals slower pace of rate hikes

Daily Currency Update

Federal Reserve Chairman, Jay Powell all but confirmed that members of the Federal Open Market Committee are looking to slow the pace of interest rate hikes in December in a speech given last night. Powell was speaking at Washington's Brooking Institution where he commented "the time for moderating the pace of rate increases may come as soon as the December meeting." This was the clearest signal yet that the Fed is looking to balance taming inflation without prompting a sharper economic downturn that many predict the US heading towards. The comments prompted an immediate dollar sell-off despite Powell's insistence that the Fed would continue to raise rates well into 2023. A 50bp hike now looks like the most likely outcome rather than another aggressive 75bp move. Yesterday’s other big news was the first fall in eurozone inflation since June 2021. CPI for the bloc fell from 10.6% to 10% further than expected and a possible sign that we may have seen the peak of price rises. The level is still five times above target and at present, it seems still likely that the European Central Bank will deem a 75bp hike necessary at its December 15th policy decision. Later today we have Personal Consumption Expenditure data from the US at lunchtime which is followed by the ISM Manufacturing PMI at 3 pm. EUR/USD is up to 1.0430.

Key Movers

GBP/USD has pushed up towards 1.21 overnight as US Federal Reserve Chairman, Jay Powell signalled that policy makers will slow the pace of rate hikes at its December meeting. GBP/USD touched 1.19 before jumping on the news with almost all currencies gaining against the dollar. Domestically there have been further signals that the UK economy is under pressure with data from Nationwide Building Society showing that house prices fell at their fastest pace since June 2020 in November. The 1.4% fall in prices was far worse than the 0.3% drop predicted and shows that higher borrowing costs are starting to impact the housing market. There is no UK data for the rest of the day so overseas releases will likely guide sterling's direction. GBP/USD is at 1.21 with GBP/EUR just above 1.16.

Expected Ranges

  • GBP/USD: 1.2060 - 1.2200 ▲
  • GBP/EUR: 1.1540 - 1.1665 ▲
  • GBP/AUD: 1.7700 - 1.7885 ▼
  • EUR/USD: 1.0355 - 1.0500 ▲