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The Greenback gets clobbered after a strong dovish message from the Fed

USD - United States Dollar

The U.S. dollar index is falling 0.60 at the time of this writing. It touched 96.57 at 8:30 this morning EST from an intraday high of 97.68 yesterday, falling by 1.14 percent within a few hours. The EUR/USD pair has more than a 50 percent share in the U.S. index and the pair has surged by around 1.16 percent in only 2 days.

The most important driver was the Fed and its FOMC decision to cut interest rates only if the economic outlook doesn’t improve in the coming months. Fed Chairman Jerome Powell said the bank will keep its interest rates at 2.5 percent for now, but he suggested that easing would be necessary if the trade war continues slowing economic growth. The Fed, as expected, also referenced that it would be “patient” on rates, and projected a larger miss from its two inflation targets this year.

Powell seems to be facing pressure from all sides including from President Trump, other central banks such as the ECB in Europe, the RBA in Australia, and even by members of the Fed's rate-setting committee. Powell’s speech suggested that he is not convinced that he is dovish just yet in spite of what he implied. Without the Fed cutting rates yesterday, the yield on the 10-year U.S. Treasury note fell to its lowest level in 2 years, U.S. stocks rallied for the 3rd straight day, and yields on short-dated U.S. Treasury bonds tumbled.

Key Movers

The Bank of Japan and the Bank of England both left their benchmark interest rates unchanged. The Euro is rising versus the British Pound by 0.30 percent. The BoE warned that the likelihood of the U.K. leaving the European Union without a divorce deal had risen. The bank said, “If Brexit goes fluently, it expects to raise interest rates over the next few years slowly.” Fundamentally speaking, the BoE cut the Q2 GDP estimate to 0 percent from +0.2 percent quarter to quarter and said that inflation expectations remain well-anchored. It also said that CPI will likely fall below the 2 percent target later this year. The BoE added that underlying economic growth in the U.K. appears to have weakened slightly in 1H 2019 and the downside risks have increased since May as global trade tensions intensify.

The EUR/GBP pair is rising today, but, technically speaking, it looks exhausted to the upside. Whether it stays on an uptrend will depend on whether it retests some lower levels to have more propulsion to go even higher.

Expected Ranges

USD/CAD: 1.3150 - 1.3243 ▼

EUR/USD: 1.1270 - 1.1344 ▲

GBP/USD: 1.2686 - 1.2754 ▲

AUD/USD: 0.6905 - 0.6941 ▲

NZD/USD: 0.6560 - 0.6602 ▲