Published: 20/05/2022 By ECAPSterling has managed to edge back to just shy of the 1.25 mark, while all other G10 currencies have also posted gains against the greenback in the past week. While there has not necessarily been an obvious single catalyst for the rally, analysts largely attribute the move lower in the dollar to the market taking a breather. As tends to be case following a prolonged rally, we may simply be seeing investors unwinding their long positions, and booking profits following the recent sharp move higher in the dollar. Another suggested reason, is that, the market has already fully priced in Fed tightening. The lack of reaction in the US dollar to the very hawkish comments from FOMC chair Powell earlier in the week, who said the Fed may have to raise interest rates above the ‘neutral’ level this year, provides further proof that it will be very difficult for the central bank to exceed market expectations this year.
Since the end of last week, the US Dollar Index has fallen by almost 2%. EURUSD has rebounded back towards the 1.06 level, helped on its way by some hawkish comments from ECB members and heightened expectations that the bank will raise rates by 25 basis points at its July meeting. A speech from ECB member Lane later in the day may be worth watching, although activity is likely to be largely driven by the change in appetite listed above.
There won’t be too much in the way of major market moving news today, aside from this morning’s UK retail sales figures that will be skewed by the base effect following the removal of lockdown measures in April 2021.