Global overview
A flurry of interest rate hikes in Europe kept the U.S. dollar on the defensive as it slipped to six-week lows on a trade-weighted basis. Sterling zigzagged after the Bank of England’s 13th straight rate hike was a larger than expected 50 basis point bump to 5%. Elsewhere, EUR/USD touched 1.10 for the first time in six weeks, while USD/CAD hit a session bottom around 1.3140, a new nine-month trough. The greenback lost ground after remarks this week from the Fed chair suggested the central bank was edging closer to ending its aggressive rate hiking campaign. The market expects the Fed to raise rates in July but the rate path beyond next month appears less hawkish, particularly if U.S. inflation continues to cool and the broader economy should slow. After the Fed’s steady hand on policy last week, central banks in Europe today pressed ahead with hikes as Switzerland raised its key rate by 25 basis points to 1.75%, while Norway moved by 50 basis points to 3.75%. Next to sway the greenback will be today’s weekly reading of jobless claims that are forecast to tick down to 260,000 from 262,000.
EUR/USD taps 1.10
The euro touched 1.10 against the U.S. dollar for the first time in six weeks in choppy, central bank-driven trade. Market attention on central banks has been a supportive theme for Europe’s single currency given that the ECB is perceived to have more rate hikes on the table than the Fed. After ending May below 1.07, the euro has leapfrogged the dollar this month thanks to the ECB’s quarter-point rate hike to 3.50%, the highest level in 22 years, that helped to narrow the buck’s yield advantage with America’s key rate just above 5%.
BOE goes big, hikes to 5%
Sterling caught a knee-jerk lift above 1.28 versus the greenback after a divided Bank of England raised rates to 5% from 4.50%, marking a new 15-year high. The market had been split on whether London would move by 25 or 50 basis points today after UK inflation failed to improve from 8.7% in May. Britain’s juicier lending rate, which is nearly on par with the U.S., stands to bolster the pound’s appeal. But higher loan rates bode bearishly for borrowing and spending and threaten to tip the economy into recession, a scenario that’s ultimately bad for sterling. Britain’s battle against inflation means that rates may be headed for 6%, a level that could stoke a hard landing for the economy where growth slows sharply that it spurs a meaningful rise in unemployment. The BOE’s nine-member rate-setting team voted 7-2 in favor of today’s hike with the two dissenters preferring to hold rates at 4.50%.
USD/CAD hits 9-month low; U.S. jobless claims steady
Canada’s dollar climbed to fresh nine-month highs of 1.3140 against the U.S. dollar which wilted under the weight of further interest rate hikes abroad. The greenback has struggled this month as central banks, including Canada’s, pushed borrowing costs higher while the Fed opted to hold steady. Looking ahead, Canada may need to deliver more rate increases than the Fed over the balance of the year should its economy fare more resiliently. U.S. weekly jobless claims steadied at 264,000 in the latest period, slightly topping forecasts of 260,000. While initial claims have edged upward, they remain at levels consistent with a tight job market, keeping the Fed on track for a dollar-positive rate hike in July.
Dollar revisits bottom of weekly range
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Jun 19-23
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
