The US dollar struck new multi-month highs in the first half of February, after the Federal Reserve pushed back strongly against bets for an imminent interest rate cut.

During this period, we’ve seen GBP/EUR trade between €1.16 and €1.17, while EUR/GBP has remained at £0.85.

At the same time, GBP/USD has slipped from $1.27 to $1.26, while EUR/USD fell from $1.08, to $1.07.

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What’s been happening?

The US dollar has enjoyed strong support over the past couple of weeks, as expectations for a March interest rate cut from the Federal Reserve evaporated in the wake of the US central bank’s first policy meeting of the year.

At the same time, some mixed messages from the Bank of England (BoE) injected some volatility into the pound in the first half of February.

Meanwhile, the euro has been undermined by several dovish speeches from European Central Bank (ECB) officials, which have fuelled speculation the bank may begin cutting rates from April.

What do you need to look out for?

Looking ahead, the publication of the UK’s latest GDP figures could inject some significant volatility into the pound, if they show that the country slipped into a recession in the second half of 2023.

For USD investors the focus will be on the release of the minutes from the Fed’s January policy meeting. If these highlight policymakers’ reluctance to start cutting interest rates in the first half of the year, the US dollar may surge.

Finally, the main catalyst of movement for the euro is likely to be the Eurozone’s latest PMIs. EUR exchange rates may face headwinds if activity in the bloc’s private sector continued to contract in February.


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