Dovish Fed pivot weakens the US dollar

Economic uncertainty has continued over the past fortnight, with recession fears and central bank dynamics causing turbulence in the currency market.

This prompted GBP/EUR to move between 1.15 and 1.17, finishing a touch north of 1.16, while EUR/GBP dropped to 0.86.

Meanwhile, GBP/USD jumped from 1.18 to 1.23, while EUR/USD bounced from 1.02 to 1.06.

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Staying on top of the latest currency news can help you time your transfers more effectively, so find out what you should be looking out for over the next couple of weeks…

What’s been happening?

The pound was boosted over the past fortnight. While the continuing cost-of-living crisis and downbeat economic data kept a lid on Sterling’s gains, risk appetite elevated the pound. Optimism around the Northern Ireland Protocol dispute further supported Sterling against the bleak economic outlook.

The euro was kept on the defensive over the last two weeks. Cooling inflation throughout the bloc served to weaken the single currency, while disappointing German data and recession worries further weighed on the euro.

The US dollar was weakened by investors paring back interest rate hike bets over the last two weeks. With inflation beginning to cool in the US, the Federal Reserve took a dovish angle and signalled a slowdown in tightening. Furthermore, the US manufacturing PMI hit a 30-month low, further adding to expectations of smaller rate rises. 

What do you need to look out for?

Inflation data is expected for both the US and UK over the next two weeks. A fall in US inflation could hurt USD while a rise in the UK’s CPI may boost GBP. 

These inflation rate readings come ahead of the Bank of England and Fed interest rate decisions. Both banks are forecast to raise rates by 50bps, but further signals of a policy slowdown from the Fed could dent the US dollar.

The European Central Bank (ECB) is also due to enact its latest interest rate rise. Markets are anticipating a 50bps rise, with any signs that policymakers fear a Eurozone recession likely to weigh on EUR.

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