After gaining for part of the night, the U.S. dollar is under pressure this morning.
Overview
U.S. equity futures are higher this morning, sapping demand for the safe-haven buck. If American shares can close higher today, they would break a five-day decline that has been set off by bets the Federal Reserve will need to continue to tighten policy. Weekly jobless claims came in as expected and have not moved the greenback. Most traders are looking ahead to Friday’s producer price index reading and Tuesday’s consumer price index print to get a fresh look at the current inflation picture. The Federal Reserve will conclude their two-day meeting on Wednesday. There are friendly wagers being placed around the office with some betting the Federal Reserve will find the scope to raise interest rates by 75 basis points again.
However, the house view and the view of the wider market is that the central bank will slow its pace of interest rate hikes and lift borrowing costs by 50 basis points. We see this as the mostly likely scenario and already priced into the dollar’s current levels. Federal Reserve Chief Jerome Powell will hold a press conference following the meeting and his comments on future policy are likely to be the biggest market movers.
What to Watch Today…
- No major economic events are scheduled for today
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CAD ⇑
The Canadian dollar is rallying against the U.S. dollar after experiencing heightened volatility yesterday following the Bank of Canada interest rate decision. The central bank hiked interest rates by 50 basis points yesterday, surprising much of the market that had priced in a 25-basis point hike. While the headline was hawkish, the central bank signaled a pause in future interest rate hikes could be coming in the near future. There is no domestic data slated for release in Canada today. This morning’s uptick for the loonie can likely be attributed to the rise in the price of oil. WTI Crude is up 3.5% at the time of writing.
GBP ⇑
The British pound initially traded lower against the U.S. dollar as traders decreased bets on future interest rate hikes. Traders are now pricing in less than one full percentage point of rate hikes by the Bank of England by February. This is the first time since early November that expectations are under a full percentage point, according to Bloomberg. However, the sterling has quickly regained its footing and is not slightly higher against its American counterpart.
