Home Daily Commentaries US dollar demand reaches highest level since March

US dollar demand reaches highest level since March

Daily Currency Update

The US dollar Index (DXY) climbed by over 0.5%, surpassing 105, marking its highest level since March. This increase came in response to recent data supporting the belief that the Federal Reserve intends to persist with raising borrowing costs. US retail sales in August grew by 0.6% month-over-month, surpassing the expected 0.2% increase. Additionally, producer prices surged by 0.7%, the highest since June 2022, surpassing market expectations of a 0.4% rise. Data released today for the week ending on September 9th revealed the number of Americans filing for unemployment benefits increased by 3,000 reaching 220,000. This figure was below the market’s anticipated 225,000 and remained in proximity to the nearly seven-month low recorded the previous week. This data further reinforced the notion that the job market continues to operate at historically low levels of unemployment, underscoring its resilience in the face of the Federal Reserve’s aggressive tightening measures.

Key Movers

The euro fell below 1.068, hitting its lowest point in three months, following the European Central Bank’s (ECB) 10th consecutive interest rate hike. As a result, the main refinancing rate reached its highest point in 22 years at 4.5%. The ECB also hinted at a pause in its monetary tightening. ECB policymakers expressed that current interest rates have reached a level where, if maintained for a considerable period, they would notably aid in returning inflation to the target level. Despite this, inflation is expected to remain elevated for an extended duration.

The pound hit a new four-month low as it traded below 1.245. This was driven by robust wage growth in August, which has created a more hawkish tone ahead of the Bank of England’s (BoE) September monetary policy decision. Despite investor expectations of a hawkish interest rate move by the BoE to align with the Federal Reserve, the pound experienced a significant decline. The overall economic outlook for the UK has become fragile. With more BoE interest rate hikes on the horizon, the possibility of the UK economy entering a recession has increased.

The USD/CAD pair hit a five-day losing streak, maintaining a bearish tone around 1.3530 as result of rising crude oil prices. The pair received some support in the form of better-than-expected US Consumer Price Index (CPI) data, which has helped limit losses. Meanwhile, the price of West Texas Intermediate (WTI) oil remains on an upward trend, hovering around $88.30 per barrel. This surge in oil prices has been sustained since November and driven by concerns about tightening global supplies. This is further exacerbated by recent cuts from Saudi Arabia and Russia, the world’s two largest oil producers.

Expected Ranges

  • EUR/USD: 1.0659 - 1.0752 ▼
  • GBP/USD: 1.2409 - 1.2505 ▼
  • AUD/USD: 0.6414 - 0.6456 ▲
  • USD/CAD: 1.351 - 1.3568 ▼