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US dollar pulls back from 20-year highs

Friday 29 April, 2022

Daily Currency Update

Demand for the safe-haven US dollar eased slightly on Friday, pulling back from 20-year highs. Though the USD rally has paused, global equity markets look on course to finish the month sharply down. Typically, as the stock market falls, the USD gains strength. And as the market climbs, the USD falls. The US dollar has had a strong four-day streak against a basket of currencies, buoyed by expectations for aggressive rate hikes to curb inflation and safe haven flows from concerns over the global economic outlook due to supply constraints from the Russia-Ukraine crisis and China's lockdowns. New US inflation data released today showed consumer prices and wages continued its surge in March. The Personal Consumption Expenditures Price Index (PCE), which is the price of goods and services purchased by consumers, excluding volatile factors like food and energy, was 5.2% in March. This was down from 5.3% in February, which means inflation didn't accelerate last month. However, taking energy price changes into account – especially when tied to the supply crunch due to the Russia-Ukraine crisis – overall inflationary pressures remain. The US Dollar Index was sitting at 103.14 at the time of writing.        

Key Movers

A first estimate of Eurozone annual inflation showed an uptick to 7.5% in April, in line with expectations. Like in the UK, soaring inflation and a slowing economy means policy makers are facing a conundrum of how much they can raise rates without bringing growth to a standstill. The other main factor the Eurozone is dealing with is the possibility of Russia turning off its gas supply to more countries. So far only Poland and Bulgaria have been affected (which each have their own currency) however should they decide to turn off German supplies then we could be looking at a huge economic shock which could tip the world’s 4th largest economy into recession. It appears some countries, including Italy, are prepared to pay in rubles. However the ongoing conflict in Ukraine and the potential further action from Vladimir Putin creates ongoing uncertainty for Europe and the wider world, despite today’s rally in stock markets. EURUSD was up 0.42%, trading at 1.05428, while GBPUSD was up 0.94% at 1.2572 at the time of writing.  

Expected Ranges

  • EUR/USD: 1.0496 - 1.0582 ▲
  • GBP/USD: 1.2448 - 1.2581 ▲
  • AUD/USD: 0.7085 - 0.7175 ▼
  • USD/CAD: 1.2724 - 1.2824 ▲