The USD has weakened overnight following the latest Federal Reserve interest rate meeting.
Although they decided to hike interest rates by another whopping 0.75%, in a bid to calm surging price levels, this was largely priced in and therefore hasn’t lent further support to the dollar. In fact, the dollar weakened following a subtle shift in the tone and comments from Fed Chairman Powell in the accompanying speech.
He said they wouldn’t be giving any more forward guidance on the rates and that decisions would now be based on a meeting-by-meeting basis subject to the data. This has given traders the impression that we might not be seeing such large hikes in US interest rates in the future (e.g. less chance of 0.75% in Sept), which has disappointed some dollar bulls. Obviously, this is not guaranteed as the data may continue to warrant a continuation of these unprecedented hikes, but it was enough to trigger a dollar sell back from investors. Furthermore, when questioned about the market starting to price in rate cuts for 2023, he chose not to push back on this and instead just said it’s notoriously difficult to predict rates 6- to 12-months out.
As a result, the GBP/USD rate is up 2-cents from yesterday’s low and now trades at a 4-week high. The EUR/USD has gained around 1-cent from yesterday but continues to trade at subdued levels and at a 2-day high. The GBP/EUR has continued its steady recovery, having clawed back around 4-cents this month, and now trades at a 3-mth high.
As above, US economic data releases will now take even more attention from investors and this afternoon we have important US growth, jobless, and consumer spending figures.
