US Dollar Rallies on Renewed Fed Bets, Pound Sheds Gains as UK Inflation Cools

Find out how the major currencies have been performing and what movement we could see in the days ahead with our weekly exchange rate update.

 

EUR – Euro Finds Mixed Success amid Economic Hopes

A new report from the European Commission gave the single currency a lift at the start of the week, as it predicted the Eurozone would avoid a recession this year. However, despite positive data, Russia-Ukraine woes began to pressure EUR as the week went on. The Euro managed to firms against its safer rivals amid a risk-off mood, but USD strength capped EUR’s gains.

The common currency could see significant movement next week amid a wealth of data. Most notably, the Eurozone PMIs and Germany’s latest economic sentiment index are both forecast to improve. If they print as expected, EUR could climb.

 

Top EUR data releases:

Feb 20 EUR 15:00 EA Consumer Confidence Flash (Feb)

Feb 21 EUR 09:00 EA Flash PMIs (Feb)

Feb 21 EUR 10:00 DE ZEW Economic Sentiment Index (Feb)

USD – US Dollar Rebounds on Fed Rate Hike Bets

With risk appetite improving at the start of the week, the safe-haven US Dollar stumbled. However, stronger-than-expected inflation data saw markets bet on more Federal Reserve interest rate rises, triggering a rally in USD. This was further boosted by a surprisingly strong recovery in US retail sales, which grew by 3% in January.

Early on in the coming week, any improvements in the US PMIs could boost USD. The Fed minutes midweek may have a smaller impact than usual, considering recent US data. On Friday, the Fed’s preferred gauge of inflation will be the key driver of movement. If the core PCE price index shows persistent inflationary pressures, the ‘Greenback’ could jump higher.

 

Top USD data releases:

Feb 21 USD 14:45 S&P Flash PMIs (Feb)

Feb 22 USD 19:00 FOMC Minutes

Feb 24 USD 13:30 Core PCE Price Index (Jan)

 

GBP – Pound Tumbles after UK CPI Dashes Rate Rise Expectations

The Pound found early success last week, as evidence of a tight labour market and accelerating wage growth prompted fresh bets on more policy action from the Bank of England (BoE). However, a larger-than-forecast cooldown in UK inflation dashed these expectations, triggering a sharp selloff in Sterling. A surprise rise in retail sales failed to aid GBP on Friday.

Looking ahead, the flash February PMIs are in the spotlight. Could signs of a recovery in the UK private sector help the Pound claw back some ground? After this, traders may take their cues from the less impactful releases from the Confederation of British Industry (CBI).

 

Top GBP data releases:

Feb 21 GBP 09:30 Flash PMIs (Feb)

Feb 21 GBP 11:00 CBI Industrial Trends Orders (Feb)

Feb 23 GBP 11:00 CBI Distributive Trades (Feb)

 

AUD – Australian Dollar Fluctuates as Market Mood Shifts

A bullish mood initially lifted the risk-sensitive Australian Dollar last week. However, a shock drop in Australian consumer confidence trimmed AUD’s gains. The ‘Aussie’ then slumped as fresh Fed rate hike bets triggered widespread risk aversion, with the market mood trying and failing to improve by the end of the week.

Economists expect mixed results from the Australian PMIs on Monday, which could trigger choppy trade. The focus then shifts to the latest Reserve Bank of Australia (RBA) meeting minutes. If policymakers expressed an appetite for further rate rises, AUD could climb.

 

Top AUD data releases:

Feb 20 AUD 22:00 Flash PMIs

Feb 21 AUD 00:30 RBA Meeting Minutes

Feb 22 AUD 00:30 Wage Price Index QoQ (Q4)

 

ZAR – Rand Slides amid Souring Sentiment

After initially slipping on Monday, the Rand managed to recover courtesy of a risk-on market mood. The upside was short-lived: ZAR slumped following the US inflation reading, due to its risk-sensitive status and negative correlation with USD. SA inflation printed as expected, prompting little movement, while domestic concerns about the country’s energy crisis kept the Rand weakened through to the end of the session.

An expected rise in South African unemployment could add to ZAR’s woes this week. Investors will also listen carefully to the latest Budget from the National Treasury, which is set to be unveiled on Wednesday. Does the SA government have a solution to the challenges facing the country’s economy?

 

Top ZAR data releases:

Feb 21 ZAR 09:30 Unemployment Rate (Q4)

Feb 22 ZAR Budget 2023

Feb 23 ZAR 09:30 PPI MoM (Jan)

 

CAD – Canadian Dollar Shored Up by USD Correlation

The Canadian Dollar softened through the first half of last week, with a decline in oil prices dragging on the commodity-linked currency. The ‘Loonie’ was able to recoup losses against some of its weaker peers through the latter part of the session as CAD enjoyed its positive correlation with USD and upward revisions to the final manufacturing and wholesale sales figures for December.

A forecast decline in both Canadian inflation and retail sales could dent the ‘Loonie’ early on, with Bank of Canada (BoC) rate cut bets and economic worries potentially pressuring CAD exchange rates. Oil price dynamics could also influence the crude-linked Canadian Dollar.

 

Top CAD data releases:

Feb 21 CAD 13:30 Inflation Rate YoY (Jan)

Feb 21 CAD 13:30 Retail Sales MoM (Dec)

Feb 23 CAD 11:00 CFIB Business Barometer (Feb)