Home Daily Commentaries Will the USD continue with its upwards trajectory?

Will the USD continue with its upwards trajectory?

Daily Currency Update

The US dollar has started Monday on the front foot, supported by a strong run of economic data out of the States that traders bet will keep the Federal Reserve on its monetary policy tightening path for longer than initially expected. The Fed rate currently sits at 4.75%, with investors betting on a further 25 basis point hike at its next two meetings.

The greenback firmed slightly against most major currencies in Asia trade, sending GBP/USD 0.06% lower to $1.2035.

Last week's higher-than-expected CPI reading has prompted bets that the Federal Reserve would get more aggressive with interest rate hikes to battle stubborn inflation.

Key Movers

In Europe, markets show that investors are already betting on a peak European Central Bank rate of around 3.75% by late summer, up from levels of around 3.4% earlier this month.
Investors are unwinding earlier bets after a string of hawkish comments from policymakers, forcing European shares to retreat further from one-year highs. ECB officials have highlighted their fears about stubborn underlying inflation.

The ECB raised rates by 50 basis points this month and pre-announced another increase of the same size for March 16, but it kept an open mind about future moves, with most policymakers expecting another rate hike in May.

Christine Legaard has also mentioned that she intends to raise by a further 50 bps in March, this was a sentiment matched by ECB policymaker Gabriel Makhlouf. To conclude, all roads lead to more rate hikes from the ECB, but the question is when it will stop and what impact may that have on the bloc's economic growth.

Expected Ranges

  • GBP/USD: 1.1955 - 1.2045 ▲
  • GBP/EUR: 1.1205 - 1.1295 ▲
  • EUR/USD: 1.0675 - 1.0755 ▲