USD maintains bullish momentum
Tuesday 25 April, 2023
Daily Currency UpdateThe US dollar was seen recovering from its low as the greenback found its footing amidst a broad risk mapping. As the US debt ceiling deadline approaches, the House of Representatives is expected to vote on a Republican-led debt and spending bill this week and rising uncertainty about the outlook for US Federal Reserve interest rates are weighing on market sentiments. Investors are adjusting their US dollar positions in preparation for a week of high-profile quarterly data releases and awaiting the US economic data release.
As per the data released by the US Federal Housing Finance Agency on Tuesday, US housing prices rose by 0.5% month-over-month in February. This reading followed January’s increase of 0.1% (revised from 0.2% growth) and was better than the market expectations for a decrease of 0.2%.
Markets are still betting high on another 25 basis point (bps) interest rate hike by the Federal Reserve during its policy meeting on May 3rd, with the inflation still above the target rate of 2%. According to the data published by the US Census Bureau and the Department of Housing and Urban Development Sales, new single‐family house prices rose by 9.6% in March to a seasonally adjusted annual rate of $683,000. The USD index (DXY) increased against its major peers and was seen revisiting the highs of 101.60 levels.
Key MoversThe euro is correcting after it fell short of the 1.1075 year-to-date high. During the early European trading session, the EUR/USD fell around 0.1% but held above the 1.10 level. The EUR rose by about 1.7% in April and over 4% since the beginning of March. Eurozone GDP data will be published on Friday, April 28. The European Central Bank (ECB) chief economist, Philip Lane, has gone on the record saying that interest rates will rise at the May 4th policy meeting but whether they will be raised further, depends on the inflation data.
The sterling tumbled sharply to the 1.2480 level after it failed to sustain the resistance of 1.25 against the greenback. Markets are betting on another 25 bps rate hike at the upcoming policy meeting to keep inflation under control. The Bank of England (BoE) hasn’t been able to stop inflation from rising. The inflation rate has remained stuck in the double-digit territory despite the aggressive monetary policy from the BoE and strict fiscal policy from policymakers. GBP/USD continues to remain under renewed bearish pressure at 1.2400 levels.
The Loonie weakened against the US dollar as the Canadian government’s 10-year bond yields fell by 6 basis points (bps) to 2.85%. USD/CAD clung to modest gains at the 1.355 level. Geopolitical fears surrounding Russia and China along with a cautious mood ahead of this week’s growth and inflation data release added to sour market sentiments. China’s alleged support to Russia in the Ukraine conflict also strengthened poor sentiments. The Bank of Canada’s (BoC) dovish stance as compared to the Federal Reserve was another risk catalyst that kept the USD/CAD buyer’s hopes high. Tiff Macklem, BoC governor, does not seem inclined to raise the interest rates any further as inflation is in check and consistently declining. However, at the same time, he has not declined the possibility of increasing the rates if inflation moves up. Oil prices did show a slight sign of recovery. Backed by the selloff in the USD index and growing optimism for increases in travel and fuel demand due to the Chinese May Day holiday. West Texas Intermediate oil sits near the 78.70 level, pausing the two-day uptrend.
- EUR/USD: 1.0976 - 1.1066 ▼
- GBP/USD: 1.2393 - 1.2506 ▼
- AUD/USD: 0.663 - 0.6704 ▼
- USD/CAD: 1.3525 - 1.3624 ▲