Global overview
Serving as both a yield play and a haven play, the U.S. dollar rolled to nearly four-week peaks against a basket of major currencies. Elsewhere, the UK pound fell to one-month lows after a divided Bank of England slowed the pace of policy tightening by hiking its key rate to 5.25% from 5%. Markets were united in anticipating a 14th straight hike by London, but were split on whether officials would tighten by 25 or 50 basis points. The greenback edged up to nearly four-week peaks against the euro and Canadian dollar. The dollar so far has weathered an unexpected credit rating downgrade by Fitch this week, a move that spooked broader global markets and spurred a flight to safer assets. In addition to drawing safety support, the dollar has also been boosted by rising Treasury yields with the 10-year climbing further above 4%. Meanwhile, fresh signs of a tight labor market put another tailwind on the U.S. unit after ADP job growth topped forecasts with a gain of 324K in July. America’s labor market holds a key to how the dollar closes out the week with news today on weekly jobless claims followed by the government’s comprehensive snapshot of July hiring.
Euro nears 4-week bottom
The euro slipped into a deeper multiweek hole against its buoyant U.S. peer. The euro’s retreat has shaved more than 3 cents, or 3%, from its July peak when it had raced to 17-month highs of 1.1275. European growth concerns have signaled to markets that ECB lending rates may be close to peak levels. EUR/USD has strengthened about 2% this year on the perception that the ECB would continue to raise rates after the Fed concluded its aggressive tightening cycle.
Sterling falls after BOE forecasts cooler UK inflation
The UK pound fell to more than one-month lows below 1.27 against the U.S. dollar after a divided Bank of England slowed the pace of rate increases with a 25 basis point bump to 5.25%, the highest level in 15 years. Six of the nine members of the BOE’s rate-setting team voted for the quarter-point hike, while two officials backed a bigger 50 basis point increase and one preferred holding rates unchanged at 5%. London expects inflation, currently just below 8%, to end this year below 5% and move inside of 2% by 2025. The BOE raised its growth forecast for this year to 0.5%, double its last update in May of 0.25%. Higher rates as expected to exert upward pressure on unemployment which the BOE sees reaching 4.5%, from 4% currently, by the end of 2024.
C$ slips to 4-week lows
Canada’s dollar fell to nearly four-week lows thanks to lower oil prices below $80 and a firmer greenback. Risk sentiment has diminished this week after the surprise downgrade of America’s top-tier credit rating by Fitch weighed on market morale. Meanwhile, weaker global data revived concerns about the outlook for the world economy that weighed on commodity-backed currencies. Key jobs data Friday from both sides of border loom as the next catalyst for USD/CAD. U.S. unemployment is forecast to steady at low levels around 3.6%, while Canada’s jobless rate is expected to tick up to 5.5% from 5.4%
Dollar rakes in more gains
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Jul 31-Aug 4
Have a question? [email protected]
*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.
