Investors prep for aggressive Fed

International investors are preparing themselves for more aggressive action from the US Federal Reserve and are questioning whether the Fed can do that without damaging the economy. We can see that in rising Treasury yields, US equity markets losing ground and a corresponding drop in the value of the US dollar. The President of the Atlanta Fed, Raphael Bostic sees larger jumps in the US base rate to combat inflation, so that is adding fuel to the fire. The immediate impact of this market sentiment is that the US dollar, which was rampant last week, weakened a little yesterday as traders took profit. Having dropped to $1.2260 yesterday, the GBPUSD rate took a step up to $1.2375 but it is a tad below that this marring. The EURUSD rate bottomed out at $1.0485 on Friday and is up to $1.0560 this morning after having been a little higher overnight. The USD will have to contend with speeches from the US Treasury Secretary, several Federal Reserve heads, and President Biden today. So, goodness only knows where we will be this time tomorrow.

AUD weaker after poor business confidence index & Asian lockdown extensions

The Asian markets were knocked overnight by an extension to the Singapore lockdown. Having been quarantined for six weeks, there were hopes that restrictions in Singapore might be ready to be relaxed. Sadly, the opposite is true and, just like Shanghai, Singapore remains isolated. Add in a set of poor Australian business sentiment indices and you can see why the GBPAUD rate moved up to AUD 1.7850 overnight before settling back to AUD 1.7730 this morning. When you consider this pair was below AUD 1.72 last Thursday, this is a significant reversal. AUD 1.7850 has proven to be a strong resistance level for this exchange rate, so it is no surprise that the Pound failed to breach it this time. If that does break through, AUD 1.81 is the initial target.

Kiwi Dollar weaker on Asian activity

Like its Aussie counterpart, the New Zealand Dollar weakened significantly over the past few days. Having been below NZD 1.91 on Thursday, the GBPNZD rate peaked at NZD 1.96 overnight and is sitting on NZD 1.95 at the time of writing. The story is much the same as for the Australian Dollar; lockdowns in Shanghai and Singapore and the repercussions that will have on Australasian exports are at the root of this bout of Kiwi Dollar weakness. Australia is New Zealand’s largest export market, so anything that damages Australia’s economy will have a knock-on effect on New Zealand.

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