USD heading for third straight weekly decline
Friday 31 March, 2023
Daily Currency UpdateThe US dollar index (DXY) topped a high of 102.50 before succumbing to selling pressure. Data released today confirmed the downtrend in US inflation figures. The DXY heads for a third straight weekly decline and had dropped more than 2% this month, this comes because investors are concerned the Federal Reserve will be winding down its rate-tightening campaign.
Today’s reports, by the US Bureau of Economic Analysis, showed the Personal Consumption Expenditures (PCE) price index dropped to 5% year-over-year in February, down from 5.3% in January. Today's figure came in below the market expectations of 5.1%. The annual core PCE price index, which is the Fed’s preferred measure of inflation, dropped slightly to 4.6% from 4.7%, coming in lower than the anticipated 4.7%. Every month, both core and PCE inflation increased by 0.3%. Additionally, personal income increased month-over-month to 0.3% in February, while spending rose by 0.2%.
Key MoversThe euro is on track for its strongest week since mid-January. This is largely due to inflation data indicating more interest rate hikes in the eurozone than in the US. The euro trades around 1.08735 against the dollar as it heads for a 1% weekly gain. The European Central Bank (ECB) stated that it would increase interest rates if inflation reaches the baseline scenario and financial negative market concerns regarding the banking sector ease.
Data published today by Eurostat showed that the Eurozone Harmonized Index of Consumer Prices (HICP) had a softer-than-expected annualized rate of 6.9% in March, as opposed to 8.5% in February. Core HICP remained stable at a year-over-year rate of 5.7%, in line with market expectations and following the previous print of 5.6% in February. EU unemployment data showed no change at 6.6%.
The pound is poised to achieve its largest monthly gain in four months, despite the relatively lackluster trading today at the 1.23800 level. Data published today showed that the UK economy grew by 0.1% in the last quarter compared to negative growth of -0.3% in the previous quarter. The annual GBP rate came in at 0.6% for Q4 vs the predicted 0.4%. The enhanced economic outlook is providing support to the markets' belief that the Bank of England will need to continue to increase interest rates, which is benefiting the pound.
The Canadian dollar experienced a decline against the US dollar today as it trades close to 1.3540. However, the CAD remains close to its highest level in over 5 weeks. This was due to the latest domestic data revealing that the Canadian economy grew faster than anticipated at the beginning of the year. In January, the Canadian economy saw a growth of 0.5% which can be attributed to an upswing in both goods-producing industries. This surpasses the prediction of a 0.3% increase. Initial figures for February showed that GDP increased by another 0.3%.
According to the Bank of Canada, the economy must decelerate for inflation to achieve its 2% objective. Financial markets are predicting that the central bank's subsequent action would be to reduce its policy rate amid recent turbulence in the global banking industry which may restrict the availability of credit. Adding to its recent gains, Canada is also benefiting from the increasing price of oil which rose to 75.140 a barrel.
- EUR/USD: 1.0871 - 1.0925 ▼
- GBP/USD: 1.2356 - 1.2422 ▼
- AUD/USD: 0.6674 - 0.6735 ▼
- USD/CAD: 1.351 - 1.3562 ▼