Daily Currency Update

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Fed stance softens dollar

USD - United States Dollar

Federal Reserve leaders opted to maintain the current policy setting, reiterating their commitment to accommodative monetary policy. The dot plot showed that many policymakers expected to maintain interest rates at record lows into 2024, softening demand for the US dollar.

However, in the lead up to the meeting, USD was shooting higher. US long-term bond yields rose to recent highs, boosting the USD and sending equity markets lower, led by the tech sector. Two hours prior to the announcement, the US 10-year rate broke up through 1.685%, the highest level since early 2020, while 10-year inflation break-evens hit an eight-year high of 2.33%

This morning, demand for the US dollar rose against the euro and the Great British pound and dropped against the Australian dollar and Canadian dollar. The US Dollar Index was up a third of a percent this morning.

Key Movers

The Great British pound broke back through 1.3950 having tested 1.3850 ahead of the Fed policy update. Sterling has struggled to extend gains beyond 1.40 and our attentions turn now to the Bank of England policy meeting this evening. We expect little change from the wait and see approach offered in recent months. That said the UK continues to lead the way in vaccinating its citizenry and with Brexit it behind there is some scope to suggest the BoE could adopt a more hawkish and optimistic tone.

The Australian dollar advanced through trade on Wednesday, buoyed by the Federal Reserve’s commitment to a dovish monetary policy. Having tracked lower through much of the domestic session testing a break below 0.77 US cents prior to the Fed policy update, the AUD shot through 0.7750 and 0.78 to mark intraday highs at 0.7812.

Expected Ranges

EUR/USD: 1.189 - 1.198 ▲

GBP/USD: 1.385 - 1.399 ▲

AUD/USD: 0.770 - 0.784 ▼

USD/CAD: 1.236 - 1.248 ▼