The US dollar weakened due to fears surrounding regional banks, while the ECB offered a less hawkish than expected 25bp hike and the Swiss franc is in demand.
The US dollar has weakened due to fears surrounding regional banks. Tighter credit conditions and weaker US growth should help take the steam out of inflation and send the dollar lower. This week, central bank policy meetings have kept traders busy, and US regulators are keeping a close eye on short-selling activity in regional bank stocks.
The volatility in these regional bank stocks is keeping money market conditions tense, which is not good news for the dollar. The US Federal Reserve is looking at cutting rates, which could help a weaker dollar, but if there’s an above-consensus price data, the dollar could go higher.
The Pound (GBP) remained subdued on Thursday, despite an upward revision in the final reading of April’s service sector PMI, which rose to a 12-month high of 55.9, lending Sterling some support. However, the Pound slipped against its safer peers due to a risk-off market mood. Looking ahead, Bank of England (BoE) rate hike bets could keep the Pound buoyed today amid a lack of data.
The ECB’s less hawkish than anticipated 25bp hike caused euro swap rates to fall and weakened EUR/USD, but the door remains open for further rate hikes, with another 25bp hike expected in June, which could support the interest rate trends for EUR/USD.
The Canadian Dollar (CAD), which is linked to commodity prices, fell earlier this week due to tumbling oil prices caused by concerns over rising interest rates and reduced demand, and if oil prices continue to decline, the CAD could experience further losses.
In Switzerland, the Swiss franc is in demand due to its non-correlated properties. Swiss inflation is still dramatically lower than that in the eurozone, and the Swiss National Bank will continue to seek nominal CHF appreciation. Analysts expect EUR/CHF to grind down to the 0.9700 area.
The Australian Dollar (AUD) was boosted on Thursday by better-than-expected trade data, with Australia’s trade surplus widening to a nine-month high of AU$15.27bn as commodity exports to China rebounded. However, AUD’s gains were restricted by a surprise downturn in China’s manufacturing sector. Today, the ‘Aussie’ climbed further after the Reserve Bank of Australia’s (RBA) policy statement contained hawkish comments on price gouging. The RBA recently surprised markets with a 25bps interest rate rise, signaling further rate hikes may be necessary in the coming months.
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