Global overview
The U.S. dollar caught a safe haven lift as elevated inflation around the globe stoked worries about rising interest rates and slowing global growth. Sterling fell after higher-than-expected UK inflation cemented expectations for another growth-dampening interest rate hike from the Bank of England next month. Meanwhile, the risk-off environment weighed on the euro and Canadian dollar, pushing the latter to one-week lows. March was forecast to be the month that UK inflation cracked below 10% for the first time in seven months. Instead, UK consumer prices rose at an annual rate of 10.1% last month, compared to forecasts of 9.8% and 10.4% in February. Inflation coming down at a snail’s pace will cement expectations for the BOE to raise rates next month which will help fight high prices but won’t inspire confidence in the growth outlook. At the midweek point, the greenback was on pace to snap a multiweek losing streak as signs of a more resilient U.S. economy assuaged recession fears and led markets to push back the timeframe for the Fed to potentially slash borrowing rates.
Euro slips to bottom of weekly range
The euro hovered around weekly lows against the U.S. dollar, a currency sought when market optimism dims. Stubbornly high inflation around the world suggests central banks are not done raising borrowing rates. A key concern for markets is that if central banks go overboard in raising rates it could push the global economy into recession. Euro zone data confirmed at consumer inflation cooled to a 6.9% annual pace in March, the lowest level in a year, but still far above the European Central Bank’s 2% target.
Sterling singed by hot UK inflation
Sterling initially waxed only to wane after chronically high UK inflation gave way to fears of higher borrowing rates and ultimately weaker British growth. The hottest food prices in 45 years kept upward pressure on prices as inflation moderated less than expected to a 10.1% annual rate in March from 10.4% in February. That marked the eighth time in nine months that Britain has endured double-digit inflation. To halt rate hikes, the BOE wants to see inflation move meaningfully toward its 2% goal, something that is yet to materialize. The BOE is widely expected to bump rates to 4.50% from 4.25% on May 11, with peak levels upwardly revised to around 5%.
Risk aversion knocks C$ to 1-week lows
The Canadian dollar fell to one-week lows against its firmer U.S. peer and as oil prices slipped to two-week lows below $80. Persistently high inflation around the world has markets bracing for further rate increases. Higher rates are undermining confidence in the global growth outlook, pressuring risk-sensitive currencies like the loonie. Meanwhile, Canada’s improving inflation backdrop, where prices cooled to 1 ½ year lows of 4.3% in March, hints at domestic borrowing rates remaining at 4.50% over the balance of 2023.
Dollar buoyed as elevated inflation weighs on global growth outlook
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Apr 17-21
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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.
