The U.S. dollar rallied on Monday. What about the Sterling?
The U.S. dollar surged forward today. It steadied after losing some amount over the recent sessions. The investors are waiting for the minutes of the Bank of Japan meeting. Several reports will also come out this week. They will likely influence the Federal Reserve’s and the European Central Bank’s decisions about monetary policy. Both banks have meetings scheduled in early May. Their outcomes will determine the forex market’s course for the coming weeks.
On Monday, the British pound plummeted by 2% to $1.2420. The common currency also declined. It shaved off 0.1%, exchanging hands at $1.09775. However, other currencies were subdued. In mid-April, both the sterling and euro hit their respective highs of $1.25 and $1.10, but they weren’t able to maintain these levels.
Meanwhile, the greenback added 0.1% versus the Japanese currency. The yen traded at 134.2 yen per dollar today. Overall, the dollar index soared by 0.12% at 101.8 during this session against a basket of six major currencies. However, on April 14, the index plunged to a one-year low, hitting 100.78. Markets expected the Federal Reserve to cut the rate later this year, but investors also bet on a few more hikes in Europe. Usually, the prospect of higher interest rates bolsters the dollar, but the opposite is also true. Thus, the possibility of the Fed’s dovish policy weighed on the currency.
Traders are waiting for the United States first-quarter GDP. They will also be able to draw conclusions from personal consumption expenditures (PCE) data before the Fed’s meeting. These reports will show whether the economy remains strong or struggling, and inflation’s course will also help to determine the Fed’s course.
What do the analysts say?
Ray Attrill, the head of FX strategy at National Australia Bank, noted that the services sectors both in the United States and Europe seem to be resilient. Thus, the central banks might prefer to continue hiking rates unless inflation shows more signs of slowing.
Forex markets expect the Fed officials to hike rates by another 25 basis points at their next week’s meeting. Though, the agency will mostly focus on guidance for future moves. On Friday, new data showed that both the euro area and U.S. business activity grew in April. That helped to alleviate some concerns about a possible recession in major economies.
Investors think the ECB will also hike its rates by a quarter point. Some of them even bet on a 50bp increase. Eurozone growth and inflation data will become available this week, as well. The Bank of Japan’s policy meeting is another anticipated event scheduled on Friday.
What about the EM currencies?
Emerging market currencies declined on Monday. The Hungarian forint dropped by 0.2% against the euro. The National Bank of Hungary will announce its policy decision this week. However, the central bank deputy governor stated that the bank might deliver a cut at the top of its interest rate corridor.
On the other hand, the Polish zloty edged up by 0.1% against the euro. But South Africa’s rand tumbled by 0.2% against the dollar. The Turkish lira traded flat, while the Russian rouble soared to 81.32 against the greenback.
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