Home Daily Commentaries USD surges ahead of Fed’s rate decision

USD surges ahead of Fed’s rate decision

Daily Currency Update

The US dollar surged this morning ahead of today’s Federal Reserve interest rate decision. The Fed is expected to leave its policy rate unchanged at the 5.25%-5.5% range. However, investors still see a likelihood that the Fed will opt for one more 25 basis point (bps) interest rate hike before the end of the year. A hawkish interest rate outlook cannot be ruled out right now though, as remaining inflationary pressures are more than the desired rate and seem to be quite sticky. US Treasury Secretary Janet Yellen said on Tuesday that, given the economy was operating at full employment, US growth needed to slow to a rate more in line with its potential growth rate to bring inflation back to target levels. The US dollar index (DXY) gained nearly 2% in August and is up more than 1.5% in September.

Key Movers

The GBP faced a sell-off as inflation remains soft while investors predicted hot prices. Plenty of volatility is likely to remain in the British market as the Bank of England (BoE) will announce its monetary policy decision on Thursday. An interest rate hike by 25 bps will push rates to 5.50%, which will equalize policy variance with the Fed.

The AUD/USD pair carried out a rally to near the resistance level of 0.6500 in the late European session. The Aussie asset picked up strength after the People’s Bank of China (PboC) kept its one-year and five-year Loan Prime Rate unchanged at 3.45% and 4.20% respectively.

The Canadian dollar reinforced its level as investors see further upside in the oil price amid continued supply concerns due to production cuts by Saudi Arabia and Russia. Market expectations show that the Bank of Canada (BoC) could hike interest rates again in the wake of a larger-than-expected jump in domestic consumer inflation. This could benefit the Canadian dollar and cap the USD/CAD pair’s rise. Statistics Canada reported that the headline Consumer Price Index (CPI) accelerated 4.0% year-over-year in August as compared to estimates for a rise to 3.8% from 3.3% in the previous month.

Expected Ranges

  • EUR/USD: 1.0677 - 1.071 ▲
  • GBP/USD: 1.234 - 1.2403 ▲
  • AUD/USD: 0.6449 - 0.6492 ▲
  • USD/CAD: 1.3394 - 1.3463 ▼