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Dollar gains ahead of Fed rate decision
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Daily Currency Update
In the past 24 hours, the US dollar has gained strength while markets await the latest interest rate decision from the US Federal Reserve this evening. The primary driver behind the advance of the US dollar was a higher-than-anticipated Q1 Employment Cost Index report from the United States. This report serves as another gauge of wage growth, indicating a 1.2% increase in labor costs compared to Q4 2023. This figure surpassed the predicted 1% and marked a rise from the previously observed 0.9%.Despite the Federal Reserve’s implementation of one of the most aggressive interest rate hiking cycles in decades, the labor market continues to demonstrate resilience, likely contributing to the recent uptick in inflation. While no policy changes are expected from the Federal Reserve this evening, there is significant anticipation regarding the insights of Fed Chair Jay Powell, particularly concerning the timing of potential interest rate cuts. Market expectations for the first Fed rate cut have shifted from June to September, driven by consecutive increases in the Consumer Price Index observed in March and April.
Consequently, GBP/USD has declined from approximately 1.2550 to its current trading level of 1.2480, while GBP/EUR remains stable around 1.17.
Key Movers
Yesterday, there was some positive news regarding the Eurozone economy, as the latest growth data surpassed expectations. In the first quarter of 2024, GDP rose by 0.3% compared to Q4 2023, exceeding the forecasted 0.1% increase. Meanwhile, April’s inflation figures revealed no change from the previous month, holding steady at 2.4% year-on-year.While these developments initially spurred a modest rally in the euro, they proved short-lived as wage growth numbers from the United States reversed these gains and then some. With much of Europe observing the May Day public holiday today, attention is squarely focused on the upcoming Federal Reserve decision this evening. Currently, EUR/USD is trading at 1.0660.
Expected Ranges
- GBP/USD: 1.2400 – 1.2565 ▲
- GBP/EUR: 1.1665 – 1.1740 ▲
- GBP/AUD: 1.9180 – 1.9390 ▲
- EUR/USD: 1.0575 – 3.075 ▲
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