Global overview
A little changed U.S. dollar was pinned near recent lows a day after the Federal Reserve raised rates to 16-year highs of 5.1%. The buck languished around its lowest level in nearly a year against the euro and sterling, while it kept to a tight range versus the Canadian dollar. As expected, the Fed this week raised rates by 25 basis points to just above 5%, with its statement setting a high bar for its next move being up or down. The Fed’s latest decision offered little to help or hurt the dollar as officials didn’t rule out further rate increases, while the Fed chair pushed back against markets betting on rate cuts later this year. The dollar’s generally subdued tone shows sentiment siding with markets that see scope for multiple rate cuts by year-end as ongoing anxiety about the health of regional U.S. banks threatens to add to economic headwinds by tightening lending standards. The market spotlight has shifted across the pond with the European Central Bank expected to raise interest rates by at least 25 basis points from 3%.
Euro slips after ECB opts for smaller 25 bp rate hike to 3.75%
The euro held below one-year highs against the U.S. dollar after the ECB slowed the pace of monetary tightening by approving a 25 basis point increase to 3.75%, the lower end of market expectations. Today’s quarter-point increase followed six straight hikes of at least 50 basis points. The ECB maintained that the inflation fight continues as it characterized prices as remaining “too high for too long.” The ECB’s statement noted that “past rate increases are being transmitted forcefully to euro area financing and monetary conditions.” That’s a signal that the ECB may be closer to pausing rate increases than previously thought, a factor that could limit fuel for the euro to strengthen further.
Sterling rolls to 11-month highs
Sterling rose to 11-month highs against the U.S. dollar as markets bet that the Fed’s latest rate hike could be the last of its epic tightening cycle. The Fed’s key rate now stands at effectively 5.1%, the highest in 16 years, following the central bank’s 10th straight rate hike. While U.S. rates currently top Britain’s comparable rate of 4.25%, the dollar’s yield advantage is on track to be eroded as soon as next week – and over coming months – as double-digit UK inflation has the Bank of England on pace to raise rates on May 11.
Loonie steadies ahead of jobs report
Canada’s dollar steadied just above one-month lows against the greenback as subdued stocks and oil capped upside. The loonie found some poise on the eve of all-important monthly jobs reports from the U.S. and Canada on Friday. Canadian hiring is forecast to cool to an increase of around 20,000 in April after March’s gain of nearly 35,000. Canadian job growth all year has exceeded market expectations, a trend that if sustained through April could lend support to the loonie as it would maintain a high bar for the Bank of Canada to lower interest rates from 4.50%.
Dollar anchored near lows
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: May 1-5
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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.
