Dollar ends week on back foot as Fed expected to pause

Written on 06/09/2023
Team UCapital 24


The dollar was softer on Friday afternoon in London, as a looming interest rate decision from the US Federal Reserve next week put pressure on the currency - particularly as that decision is expected to be a pause in rate hikes.

The Fed will announce its next interest rate decision on Wednesday next week. Markets see a 74% chance of the central bank holding US interest rates steady, with the balance expecting another 25 basis point hike.

Amid the pre-decision jitters, the dollar's safe-haven peers gained ground.

Against the Swiss franc, the dollar was priced at CHF0.9011 on Friday afternoon, down from CHF0.9023 at the same time on Thursday. Versus the Japanese yen, the dollar was trading at JPY139.27 in London, lower against JPY139.39.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said a jump in US initial jobless claims, revealed on Thursday, helped pull back the dollar. She argued that the figures "slightly" scaled back hawkish Fed expectations, which were heightened following two shock rate hikes from the Reserve Bank of Australia and the Bank of Canada on Tuesday and Wednesday this week.

According to the US Department of Labor, initial claims for unemployment support in the week ended June 3 totalled 261,000, an increase of 28,000 from the previous week's revised level. The previous week's level was revised up by 1,000 to 233,000 from 232,000.

Francesco Pesole at ING said the fact that a rise in US jobless claims sent the dollar lower across the board confirmed how foreign exchange markets have an "extremely elevated sensitivity" to data at this moment.

Versus the Australian dollar, the US currency was priced at AUD1.4842, down from AUD1.4923. Against the Canadian dollar, the US dollar traded at CAD1.3340, slightly lower against CAD1.3345.

With the Federal Open Market Committee now in a 'blackout' period, Tim Waterer, chief market analyst at KCM Trade, said that the greenback is "devoid of positive drivers". As a result, Waterer argued, currencies such as the euro and sterling have been able to post gains.

The euro was changing hands at USD1.0765 on Friday afternoon London time, higher against USD1.0747 at the same time on Thursday.

The pound was quoted at USD1.2572 on Friday afternoon, up sharply from USD1.2457 on Thursday afternoon. Against the euro, sterling was trading at EUR1.1679, up from EUR1.1615.

The ECB announces its interest rate decision the day after the Fed, with markets widely expecting another 25 basis point lift from the Frankfurt-based central bank amid stubbornly high inflation in the eurozone.

The Bank of England then will take centre stage a week later.