US Dollar Soars on Hawkish Fed Comments and Upbeat Data
By The US Dollar continued to strengthen on Friday, reaching its highest level since early January above 104.00.[0] This was supported by upbeat macroeconomic data releases and hawkish comments from Fed officials.[1] Without major data releases, markets will be focusing on what central banks have to say before the weekend arrives.[1]
The European Union Commission has revised its Eurozone 2023 GDP forecast upwards to 0.9%, a 0.6% increase from its previous estimate of 0.3%, and has reduced its 2023 inflation forecast to 5.6%, a 0.5% decrease from the prior forecast of 6.1%.[2] Meanwhile, U.S. retail sales rebounded sharply in January after two straight monthly declines, rising 3.0% on the month compared with December’s 1.1% fall.[3] This led to an increase in the 10-year Treasury yield to its highest level since November, as traders are pricing in a more aggressive Fed in the months to come.[4]
According to Cleveland Federal Reserve President Loretta Mester, the Federal Reserve needs to increase interest rates beyond 5% and maintain them at that level for a time in order to effectively contain inflation.[5] St. Louis Fed President James Bullard also noted that continued policy rate increases can help lock in a ‘disinflationary trend' during 2023.[1]
USD/JPY is up 0.7% and close to 135.00, making it the top gainer among the major currencies.[4] Meanwhile, sterling is seen as the weakest currency on the day, as the currency has been tracking the US dollar.
In terms of economic data, the US inflation report, scheduled to be released at 13:30 GMT, will be the next driver of price action across a swathe of markets.[6] Core and headline inflation are both anticipated to decrease, however, any change from current market outlooks is likely to create a period of volatility.[6]
Technically, the Euro may be susceptible to the US dollar.[7] Last week, EUR/USD kept decreasing in value after breaking through a Bearish Rising Wedge chart formation.[7]
Centeno, a member of the ECB Governing Council, noted that inflation is decreasing at a quicker rate than what was anticipated. However, to slow down the rate of interest rate hikes, the ECB “really needs to see inflation converging to 2% in the medium term”.[2]
0. “US Dollar Bumped Higher by Hawkish Fed and Blistering PPI. Higher USD?” DailyFX, 17 Feb. 2023, https://www.dailyfx.com/news/us-dollar-bumped-higher-by-hawkish-fed-and-blistering-ppi-higher-usd-20230217.html
1. “Forex Today: Hawkish Fed bets fuel US Dollar rally ahead of the weekend” FXStreet, 17 Feb. 2023, https://www.fxstreet.com/news/forex-today-hawkish-fed-bets-fuel-us-dollar-rally-ahead-of-the-weekend-202302170703
2. “Dollar Fades On Lower T-Note Yields And Stronger Stocks” Barchart, 13 Feb. 2023, https://www.barchart.com/story/news/14160129/dollar-fades-on-lower-t-note-yields-and-stronger-stocks
3. “Dollar retreats from six-week high; data deluge eyed By Investing.com” Investing.com, 16 Feb. 2023, https://www.investing.com/news/forex-news/dollar-retreats-from-sixweek-high-data-deluge-eyed-3005009
4. “Dollar bids ramp up as bond yields push higher to start the session” ForexLive, 17 Feb. 2023, https://www.forexlive.com/news/dollar-bids-ramp-up-as-bond-yields-push-higher-to-start-the-session-20230217/
5. “Dow, Gold slips on hotter PPI and hawkish Fed talks” iFOREX, 17 Feb. 2023, https://www.iforex.in/news/dow-gold-slips-hotter-ppi-and-hawkish-fed-202302170652
6. “Euro Update: EUR/USD Holds Early Gains After EU GDP Release, US CPI Looms” DailyFX, 14 Feb. 2023, https://www.dailyfx.com/news/euro-update-eur-usd-holds-early-gains-after-eu-gdp-release-us-cpi-looms-20230214.html
7. “US dollar price action setups: EUR, AUD, JPY, GBP” https ://www.ig.com, 14 Feb. 2023, https://www.ig.com/en-ch/news-and-trade-ideas/us-dollar-price-action-setups–eur–aud–jpy–gbp-230214
