Positive outlook for US Dollar as USD index paces above 104 levels
Tuesday 21 February, 2023
Daily Currency UpdateBusiness activity in the US services sector expanded in early February following January's retrenchment with S&P Global Services PMI rising to 50.5 from 46.8 in January, surpassing the market expectation of 47.2. The US dollar continues to pull support from the growing bets for at least a 25 basis point hike at the next two Federal Open Market Committee (FOMC) policy meetings in March and May. The prevalent negative mood of investors amidst the looming recession risks and ongoing geopolitical tensions benefits the USD and supports prospects for a further appreciating move for the USD/CAD pair. Existing-Home Sales data showed a decline in home sales by 0.7% in January. This data didn’t seem to have a noticeable impact on USD performance against other major pairs. Against the backdrop of weaker crude oil prices, softer Canadian consumer inflation figures weigh on the commodity-linked Loonie and provide a modest lift to the USD/CAD. Apart from this, the market may potentially follow cues from oil price dynamics which would mean following short to medium-term opportunities ahead of the upcoming FOMC meeting on Wednesday.
Key MoversEUR/USD remained under modest pressure and traded in negative territory at around the 1.0650 level. The data from the US exhibited business activity that expanded unpredictably earlier this month, letting the US dollar preserve its strength against other pairs. Analysts strongly believe that European Central Bank is considering raising the rates by 50 basis points at the next meeting. GBP/USD appears to be losing its bullish move and has retreated below the 1.2100 level. Stronger-than-expected Purchasing Managers’ Index (PMI) data from the US provided a boost for the USD and forced the pair to retract a portion of its earlier gains. The market is forecasting 25 basis point hikes at the next 2 meetings in March and May by the bank of England. This may take the bank rate peak to 4.5%. UK PMI data showed that business activity in the UK performed stronger than expected with a jump from 48.7 to 53.3. West Texas Intermediate crude oil remained depressed near $76.50 levels as it fades after last Friday’s bounce off a 10-week low.
- EUR/USD: 1.0647 - 1.0696 ▼
- GBP/USD: 1.1994 - 1.2143 ▼
- AUD/USD: 0.6856 - 0.6917 ▼
- USD/CAD: 1.3446 - 1.3527 ▲