Dollar Recovers after Fed’s 50bps Rate Hike
The US dollar rebounded against its major trading partners early Thursday after initially dipping following the Federal Open Market Committee’s decision Wednesday to raise the federal funds rate by 50 basis points and to begin reducing its securities holdings on June 1.
Federal Reserve Chairman Jerome Powell said in his post-meeting press conference that further 50 basis point increases should be on the table for discussion at the next couple of FOMC meetings but added that a 75 basis points increase is not being actively considered calming market fears.
Thursday’s data schedule includes weekly initial jobless claims and natural gas stocks and the first estimate of the first quarter (Q1) productivity. READ: Dollar Trades Strong as Fed Split on 50bps Rate Increase
Earlier Thursday, Challenger reported a further increase in layoff intentions, led by the entertainment and leisure sector. The focus then turns to Friday’s monthly employment report for April.
A quick summary of foreign exchange activity heading into Thursday shows that EUR-USD fell to 1.0594 from 1.0622 at the Wednesday US close but was up from 1.053 at the same point Wednesday morning.
EU construction PMI declined in April according to data released earlier on Thursday, with mixed readings from Germany, France, and Italy. In contrast to the Fed’s tightening cycle, the European Central Bank is expected to hold rates steady at its meeting on June 9.
ECB Chief Economist Philip Lane said earlier Thursday that recent wage agreements suggest that employers and unions see the recent jump in inflation as temporary.
GBP-USD fell to 1.2445 from 1.2636 at the Wednesday US close and from 1.2516 at the same point Wednesday morning. United Kingdom (U.K) services purchasing manager index (PMI) fell in April, according to data released earlier Thursday.
The Bank of England raised interest rates by 25 basis points Thursday and said further tightening will likely be needed as inflation is seen peaking later in the year.
USD-CAD rose to 1.2771 from 1.2738 at the Wednesday US close but was below the 1.2813 level at the same point Wednesday morning. There are no Canadian data scheduled for release on Thursday, so markets are tuned in for the release of Canadian employment data on Friday, the same time as the US version.
The Bank of Canada next meets on June 1, when another 50 basis points rate increase is expected, and a 75 basis points hike is being priced in by some analysts. USD-JPY rose to 129.9535 from 129.105 at the Wednesday US close and from 129.9293 at the same point Wednesday morning.
Markets are closed in Japan until Friday when the monthly inflation data will be released. The pair initially declined sharply after the FOMC decision Wednesday afternoon but recovered later in the day. #Dollar Recovers after Fed’s 50bps Rate Hike