US Fed more hawkish – USD surges

The US Dollar slammed everything in its path overnight after the US Federal reserve upped its forecast for inflation and the pace of monetary tightening. It may not sound like much but hearing the Fed plan for 2 hikes in 2023 was a surprise. That gave the US Dollar a steroid shot. It gained more than a cent against the Euro. EURUSD only found buyers again when it had dipped below $1.20. The GBPUSD rate also shot down to dip below $1.40. Those of you who had orders in the market to take advantage of those dips, well done.

Australian unemployment drops

The USD wasn’t the only lively player overnight. Australian unemployment dropped sharply to 5.1% in May as more than 115,000 new jobs were added. That is down from a 5.5% unemployment rate in April, so a substantial change. The Australian Dollar has benefitted but the resilience of the Pound means the GBPAUD rate is still supported around A$ 1.8350, having been half a cent higher and a little lower too overnight.

NZ GDP posts strong recovery

The Kiwi Dollar also had a boisterous night; partly due to the US Dollar’s antics but also due to a significant pick up in NZ’s economic growth in Q1. The 2.4% annualised growth announcement shocked markets that had been expecting something like 0.9%. The GBPNZD rate has been as high as NZ$1.9860 overnight but also down to NZ$1.97. It starts Thursday half a cent up on that low.

Fort its part, Sterling is steady after Britain’s Chancellor of the Exchequer commented that inflation expectations are ‘well anchored’. Inflation is a year-on-year calculation, so it is bound to spike this year that makes Mr Sunak’s comment a statement of the blindingly obvious but it seemed to allay journalists’ fears. So, whilst the US Dollar raged away overnight, the Pound made gains in most areas. GBPEUR starts Thursday near that €1.17 ceiling.

There isn’t a lot from the UK side of that equation today but eurozone inflation is expected to pick up (please see previous comments about annualised changes) and there are several speeches from European Central Bank members today. So there is every reason to suspect 1.17 will hold for now.

The US Dollar could make further gains if this afternoon’s employment data is robust and there is every reason to expect that to be the case.

It will be a busy day and very wet here in the South East of England. Sou-westers and wellies on.

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