US dollar in limbo ahead of key Fed rate decision
Tuesday 21 March, 2023
Daily Currency UpdateThe US dollar continued its downward trend as the dollar index (DXY) trades near 103.020. Investors will be eyeing the Fed's rate decision on Wednesday closely. Currently, there is an 85% chance of a 25 basis point (bps) increase. The recent volatility in the market has caused many investors to question the stability of the global banking sector.
Data reported by the National Association of Realtors showed the rate of existing home sales in the US rose by 14.5% in February after a contraction of -0.7% in January. With the adjusted annual rate coming in at 4.58 million compared to the previous 4 million.
Key MoversEUR/USD traded higher for the fourth consecutive session as it rose above 1.07540. Daily gains for the pair can be attributed to the hawkish narrative from some European Central Bank (ECB) speakers who are in favor of a 25 bps rate hike at the next meeting in May. Speaking on Monday ECB President, Christine Lagarde, commented that the ECB could see its monetary policy become looser, considering the recent banking crises, which could reduce demand. She reassured the public that the current concerns would not stand in the way of the ECB fighting inflation. Data for the Eurozone today saw the Zentrum für Europäische Wirtschaftsforschung (ZEW) economic sentiment index fall sharply in March. The ZEW was down 10.0 from the previous 29.7 while construction output for January increased to 3.91% from the previous -2.31%.
GBP/USD trades below 1.2253 as the market's focus now shifts towards the upcoming interest rate announcements this week for both the Federal Reserve and the Bank of England (BoE). A 25 bps increase is currently expected by the BoE.
The Canadian dollar hit a two-week high against the greenback to trade above 1.36720. This was after the USD/CAD pair fell to an intraday low of 1.3645. Canadian data released today revealed the annual inflation rate in February fell from 5.9% in January to 5.2% and performed better than the forecasted 5.4%. On a monthly basis, Consumer Price Index (CPI) data came in at 0.4% compared to the anticipated 0.5%. Oil prices continued to rebound from a 15-month low yesterday, to trading above $68.60 a barrel.
- EUR/USD: 1.0706 - 1.0787 ▲
- GBP/USD: 1.2214 - 1.2282 ▼
- AUD/USD: 0.6656 - 0.6723 ▼
- USD/CAD: 1.3648 - 1.3696 ▲