USD Shadows British Pounds, BoE to Hike Rate Again
The US dollar (USD) was moved higher against its major trading partners early Thursday ahead of the release of weekly initial jobless claims and the flash IHS Markit estimates for March. British pounds weakened against the dollar as Bank of England is expected to jerk up the benchmark interest rate further in May.
Trading reports shows that markets expect further tightening from the British author after a 25 basis points rate increase last week as uncertainties in the global economy persist, with Russia’s invasion on Ukraine driving energy cost higher.
The focus remains on Federal Reserve speakers after Chairman Jerome Powell said earlier in the week that the Federal Open Market Committee would act as needed to control inflation, even if that meant multiple 50-basis-point increases in the federal funds rate or moving the rate above the long-term neutral rate for a time.
Markets are now pricing in at least one 50 basis points increase this year, supported by comments from other Fed speakers this week. There are four Fed appearance scheduled for Thursday, with Fed Governor Christopher Waller’s discussion of the US housing market highlight.
February durable goods orders and the weekly natural gas stock levels will also be released on Thursday, followed by the final reading for Michigan Sentiment on Friday.
A quick summary of foreign exchange activity heading into Thursday shows that USD-JPY jumped to 121.6453 from 121.1423 at the Wednesday US close and 121.0178 a day earlier. READ: Dollar Trades Stronger as Market Focus on FOMC Meeting
Japan’s manufacturing PMI rose in March while the service sector index increased but remained below the breakeven point, data released overnight showed, suggesting that the Japanese economy is starting to recover after a difficult start to the year.
The Bank of Japan is still expected to keep its policy rate unchanged for the near future despite recent inflation increases. USD-CAD rose slightly to 1.2567 from 1.2564 at the Wednesday US close and was slightly below the 1.2588 level a day earlier.
Canadian manufacturing sales data will be released at 8:30 am ET. The Bank of Canada is expected to tighten further at its next meeting in April in response to high inflation, with the possibility of a 50-bp increase being heavily priced in.
EUR-USD slipped modestly to 1.099 from 1.1007 at the Wednesday US close and from 1.1001 a day earlier.
EU flash PMI data released earlier on Thursday showed a slowdown in manufacturing conditions to a 14-month low and a decline in the services index to a two-month low, though both readings remained above the breakeven point even as war rages in Ukraine.
The European Central Bank is expected to be cautious regarding the pace of its tightening cycle.
GBP-USD weakened to 1.3193 from 1.3206 at the Wednesday US close and 1.3209 at the same point a day ago. UK flash PMI data released earlier Thursday were mixed, showing a slowdown in manufacturing growth in March, but the acceleration in services growth.
READ: UK Inflation to Rise Sharply for Next Six Months, Says Fitch
