US Dollar Spikes on Powell Comments, Pound Rallies on UK Economy’s Resilience

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 Bolstered by ECB Rate Hike Expectations

Hawkish comments from European Central Bank (ECB) policymakers helped the Euro to get off to a strong start this week. EUR then maintained a positive trajectory through the latter half of the week, although the single currency’s negative correlation with the US Dollar tempered these gains somewhat.

The ECB’s latest interest rate decision will undoubtedly be the focus for EUR investors next week. Another 50bps hike is largely priced in so the focus will be the bank’s forward guidance. Will the ECB signal its hikes will continue?

Top EUR data releases:

Mar 15 EUR Industrial Production (Jan)

Mar 16 EUR ECB Interest Rate Decision

Mar 17 EUR Inflation Rate (Feb)

 

USD – US Dollar Sheds Post-Powell Gains

The US Dollar skyrocketed in the first half of the week after Federal Reserve Chair Jerome Powell signalled the pace of US interest rates may need to accelerate, propelling the odds of a 50bps hike in March to almost 80%. The US Dollar then relinquished these gains in the second half of the week despite another upbeat US payroll release. A rising jobless rate and slowing wage growth dented Fed rate hike bets.

All eyes will be on the latest US consumer price index next week. Another above-forecast US inflation reading is likely to cement Fed rate hike bets and extend the US Dollar’s bullish run.

Top USD data releases:

Mar 14 USD Inflation Rate (Feb)

Mar 15 USD Retail Sales (Feb)

Mar 17 USD Consumer Sentiment (Mar)

 

GBP – Pound Recovers on Stronger UK GDP

The Pound stumbled in the first half of this week as Powell’s comments raised concerns over the apparent policy divergence between the Fed and the Bank of England (BoE), as the latter looks to be close to ending its current hiking cycle. The publication of the UK’s latest GDP figures then lent support to Sterling at the end of the week after reporting a stronger-than-expected rebound in growth in January.

Next week will see the release of the UK’s latest jobs report. Could a strong pick up in UK wage growth boost BoE interest rate expectations and strengthen the Pound?

Top GBP data releases:

Mar 14 GBP Unemployment Rate (Jan)

Mar 14 GBP Average Earnings (Jan)

Mar 15 GBP Spring Budget 2023

 

AUD – Australian Dollar Nosedives on RBA’s Dovish Hike

The Australian Dollar came under heavy selling pressure this week, after the Reserve Bank of Australia (RBA) raised interest rates but also signalled it might be nearing the end of its tightening cycle. Risk-off flows then kept the ‘Aussie’ suppressed through much of the second half of the week.

Australia’s latest employment figures will likely act as the main catalyst for movement for AUD exchange rates next week. Will a rebound in employment growth lend support to the Australian Dollar?

Top AUD data releases:

Mar 14 AUD Business Confidence (Feb)

Mar 16 AUD Unemployment Rate (Feb)

 

ZAR – Rand Slumps on Abysmal GDP Figures

The South African Rand tumbled through the first half of this week as a larger-than-expected contraction in fourth-quarter growth weighed heavily on ZAR sentiment. The emerging-market currency then made a modest recovery in the latter part of the session amid weaker USD demand.

The only ZAR data of note next week will be South Africa’s latest retail sales figures. These could pull the Rand even lower as another expected decline in sales growth is likely to stoke recession fears.

Top ZAR data releases:

Mar 15 ZAR Retail Sales (Jan)

 

CAD – Canadian Dollar Slumps as BoC Leaves Rates on Hold

The Canadian Dollar’s positive correlation with the US Dollar initially buoyed CAD exchange rates this week. However, the Bank of Canada’s (BoC) decision to leave interest rates on hold, coupled with a pullback in oil prices, then weighed on the ‘Loonie’ later in the session.

In the absence of any notable domestic data, movement in the Canadian Dollar may be tied to oil price dynamics next week.