Home Daily Commentaries US dollar declines following weak data output

US dollar declines following weak data output

Daily Currency Update

The US dollar declined on Monday, losing its earlier gains following unexpected oil output cuts from OPEC+. The US economy continued to slow with declines in manufacturing and construction data.

The data released on Monday added to the narrative that the Federal Reserve is near the end of its interest rate increase cycle. US manufacturing activity in March dropped to its lowest level in nearly three years as new orders continued to contract. Construction spending also weakened, down 0.1% in February after increasing 0.4% in January, which supported Monday's losses for the USD.

Traders have now priced in a 65% chance of another 25 basis-point rate hike by the Fed in May and have also factored in a pause in June and rate cuts by December.

Key Movers

The pound is one of the best-performing currencies of the year, which is somewhat surprising, as the economic outlook is not looking so great. The Bank of England is still increasing interest rates, but it is nearing the end of its hiking cycle.

The pound ended March with its biggest monthly gain in four months of 2.6%. UK inflation is around 10.4% - over five times the Bank of England's target rate of 2% and the highest among the G7 nations. The BoE has raised interest rates 11 times in a row with its next meeting set for May. Traders are pricing in a 66% chance of a further 25 bp hike at its next meeting, which could bring more support for the pound.

Expected Ranges

  • GBP/USD: 1.2405 - 1.2485 ▲
  • GBP/EUR: 1.1365 - 1.1435 ▲
  • EUR/USD: 1.0885 - 1.0955 ▲