Home Daily Commentaries The US dollar weakens, driven by profit-taking after a strong rally last week

The US dollar weakens, driven by profit-taking after a strong rally last week

Monday 19 September, 2022

Daily Currency Update

The US dollar weakens, driven by profit-taking after a strong rally last week. This week's FOMC meeting in the US might not be just about the magnitude of the rate hike, but the path after that. Market participants expect a third successive 75 bps rate hike from the FOMC on Wednesday, followed by two 50 bps increases in November and December. Any sign that the Fed could ease the brakes in rate hikes is gone for now. Looking out further, financial markets are now pricing in Fed rate hikes of up to 4.25-4.50% by the first quarter of next year, followed by rate cuts in the last half of 2023, followed by more cuts in 2024. In a 60 minutes interview on Sunday, US President Joe Biden declared that, "...the pandemic is over." The President said there are still issues with COVID-19, but the worst is behind the US. He also focused on the battle with inflation, saying that "We're gonna control inflation."

Key Movers

Starting this week, all eyes are on central banks. We have announcements this week from central banks in the US, Japan, Switzerland, Sweden, and Norway. As of today, at the time of this writing, the S&P 500 is down 19% year-to-date, with the DXY US dollar index up almost 15%. It is only two days before the next Fed meeting, and, for now, the US dollar might keep the bid, despite other G-10 central banks catching up with rate hikes of their own. In Europe, the German central bank warns that winter conditions will likely worsen. Furthermore, ECB vice president Luis de Guindos said further interest rate increases would depend on economic data.

Expected Ranges

  • EUR/USD: 0.9970 - 1.0027 ▲
  • GBP/USD: 1.1359 - 1.1440 ▲
  • AUD/USD: 0.6674 - 0.6730 ▲
  • USD/CAD: 1.3246 - 1.3359 ▼