Currency Note

Dollar rises strongly ahead of Fed decision tomorrow

By Alex Bennett May 3rd, 2022

The big story continues to be the strength of the US dollar, which has strengthened by a minimum of 3% against the next nine major currencies over the past month.

The prompt for that has been, firstly, the multiple risks that face the global economy right now, from lockdowns in China to energy prices and the war in Ukraine, all exacerbating problems coming out of the pandemic. Secondly, the likelihood of the US Federal Reserve raising interest rates.

That will be decided tomorrow.

For the pound, after testing close to its weakest against the euro since late 2021 last week, sterling has made a modest recovery in the last few days, rising above €1.19 again.

There is a similar picture with GBP/USD, although its very small bounce has something of the dead cat about it and it remains close to its weakest for nearly two years.

There has been a slew of industrial and economic data from the eurozone over the past few days, most of it of concern.

In the business news, Qantas is reported to be buying jet aircraft that will be able to fly London to Sydney, Australia non-stop.

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GBP: Modest recovery in sterling

The pound has traded sideways against the euro recovered a fraction of its losses against the US dollar over the long weekend.

There were no data releases over the Bank Holiday in the UK, and little of note today, other than a final reading for manufacturing PMI. Hence most of the pressure on sterling will come in the form of data from the eurozone or US.

However, tomorrow there is plenty of mortgage and lending data and the main event of the week will be the Bank of England’s interest rate decision on Thursday.

GBP/USD past year

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EUR: Economic data disappoints

The single currency had a mixed day yesterday following a mixed week but a generally positive month against all but the US dollar.

Economic data coming out of the eurozone has been mixed. German retail sales disappointed severely – falling 2.7% in the year to March against an expectation of a 2.1% rise – and overall economic sentiment for April across the eurozone was also less than expected. However, Italian German unemployment has been better than forecast.

USD: Dollar beats all-comers in interest rate decision week

The US dollar’s winning ways continued over the long weekend, although its performance was muted against sterling in a week when both economies will see interest rate decisions.

In the biggest data release yesterday, ISM manufacturing PMI for April at 55.4 was severely below expectations of 57.5, and manufacturing employment was 50.9 compared to an expectation of 56.2.

Also on the jobs front, later today we’ll hear JOLTS Job Openings for March, which are expected to remain stable at 11.27million.

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