Recession worries may lead to another US dollar rally

Daily Currency Update

Growing worries that continued monetary tightening with the Federal Reserve could trigger a recession have led to expectations of a US dollar gains this week. After an eventful week of 50 basis point hikes for the Fed, BoE, and ECB, future guidance on rate increases was the key driver for the respective currencies.

The European Central Bank came out on top as Christine Lagarde signalled that rates would need to rise significantly further at a steady pace to cover ground lost against the Federal Reserve.

The euro area’s central bank said the inflation forecasts it uses had been revised up and it does not see inflation returning to its 2% target until 2025, but that it sees any recession in the bloc as being “relatively short-lived and shallow.” The ECB also announced quantitative tightening would begin in March.