Home Daily Commentaries Recession worries may lead to another US dollar rally

Recession worries may lead to another US dollar rally

Daily Currency Update

Growing worries that continued monetary tightening with the Federal Reserve could trigger a recession have led to expectations of a US dollar gains this week. After an eventful week of 50 basis point hikes for the Fed, BoE, and ECB, future guidance on rate increases was the key driver for the respective currencies.

The European Central Bank came out on top as Christine Lagarde signalled that rates would need to rise significantly further at a steady pace to cover ground lost against the Federal Reserve.

The euro area’s central bank said the inflation forecasts it uses had been revised up and it does not see inflation returning to its 2% target until 2025, but that it sees any recession in the bloc as being “relatively short-lived and shallow.” The ECB also announced quantitative tightening would begin in March.

Key Movers

The Bank of England on Thursday hiked its main interest rate by 50 basis points and signalled that more tightening will be needed to rein in inflation. The Monetary Policy Committee voted 6-3 in favour of the half-percentage point hike, which takes the bank rate to 3.5%. The rise marks a slowdown from November’s 75 basis point increase. Two of the dissenting policymakers voted to leave the benchmark rate unchanged at 3%, while the third backed another 75 basis point increase to 3.75%.

Expected Ranges

  • GBP/USD: 1.2205 - 1.2285 ▲
  • GBP/EUR: 1.1445 - 1.1515 ▲
  • EUR/USD: 1.0615 - 1.0705 ▲