US dollar stabilized but remains vulnerable
Wednesday 29 March, 2023
Daily Currency UpdateAfter several poor sessions, the US dollar paused its recent declines and stabilized against its major peers. Looking at the pattern of volatility over the last few days it seems that the FX markets have been struggling to find a trend. The Federal Reserve’s unclear stance and blurred communication on rate cuts in comparison to its other western counterparts leave the USD in a vulnerable spot. The combination of all the macroeconomic and geopolitical factors indicates that the markets will continue to be slightly skeptical towards the US as compared to the Eurozone. US regulatory authorities reaffirmed the strength of the banking system. This statement aided a slight reversal in the recent negative sentiment throughout markets. Concerns over inflation have provoked market investors to re-evaluate their expectations for monetary policy from several major central banks, including the European Central Bank and the Fed. The USD Index (DXY) regained very little composure and revisited the 102.55 level amid the market reactions to the problems in the banking industry.
Key MoversThe GBP/USD pair retreated from the 1.2360 level with modest losses, pulling back from its highs since February. The market sentiment for further rate hikes by the Bank of England (BoE) continues to act as a catalyst for the GBP. Food prices have increased by 15.0% over the year, noted as a record high. This, in turn, supports prospects for a further near-term appreciating move for the GBP/USD. BoE governor, Andrew Bailey, stated that the UK banking system is in a stable situation and is not experiencing stress linked to the ongoing global chaos in the banking sector.
EUR/USD climbed to renewed multi-day highs near the 1.0870 level and may strengthen even further to around 1.10 provided the core inflation favors its uptick.
Crude oil prices extended a bullish course and climbed to over a two-week high. This uptick in the oil prices was seen underpinning the commodity-linked Loonie and exerting some downward pressure on the USD/CAD pair. The pair was trading well under the 1.3600 level, at 1.3565. A pause in crude oil exports from Iraq's Kurdistan region raised fears about tightening global supplies. This, along with an optimistic sentiment for strong fuel demand in China, continues to support oil prices amidst a drop in US crude inventories. US Treasury bond yields and a largely optimistic tone around the equity markets, continue to keep a lid on any meaningful gains for the safe-haven greenback. The fundamental backdrop advocates that the path of least resistance for the USD/CAD pair is downward. West Texas Intermediate oil was last seen trading at the 7.380 level, inching closer to the 74 mark.
- EUR/USD: 1.0821 - 1.0868 ▲
- GBP/USD: 1.2307 - 1.2358 ▼
- AUD/USD: 0.6663 - 0.6170 ▲
- USD/CAD: 1.3564 - 1.3628 ▲